Earlier this week, Fed Gov. Lael Brainard said that despite the strength in the USA labor market, the lack of inflationary pressure “makes the case to tighten policy pre-emptively less compelling”. Not so fast. The Nikkei said instead of getting rid of negative interest rates, BoJ will delve further into it – so an operational twist is just a way to help Japan’s commercial banks.
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The rise in the 10-year yield slowed as bond market weakness, which had sent it to a three-month high of 1.752 per cent earlier this week, ebbed slightly. However, another Fed member, Rosengren, also spoke the following day in complete contrast alluding to the markets that low rates may be bringing on more risk than the Federal Reserve would like, comparing it to “irrational exuberance”.
Futures traders are pricing in a 12 per cent chance of Fed rate hike this month, down from 15 per cent on Wednesday, according to the CME Group’s FedWatch tool.
Elsewhere, the dollar was little changed at 102.555 yen.
Global equity prices advanced after weak United States retail sales data undermined the argument that the Federal Reserve will raise interest rates next week.
Few Japanese companies believe the central bank’s aggressive monetary stimulus will achieve its goal of spurring inflation, a Reuters poll found, with firms citing negative fallout from the programme more than positive effects.
Though the BoJ is fairly more likely to surprise the markets next week than the Fed, a somewhat higher probability outcome is that both the Fed and BoJ will leave interest rates and monetary policy largely unchanged.
The U.S. dollar eased from an eight-day high against the yen as skepticism grew that the Bank of Japan would intensify its stimulative monetary policies next week.
Japanese banks were hit hard this week amid concern a deeper dive into negative rates by the BOJ will curb an earnings recovery. Although their exact policy plans aren’t clear, many investors expect the BOJ to offer more quantitative-easing measures, while the Fed is expected to hold pat, but may hint at a near-term rate increase.
Japan’s currency strengthened 0.1 per cent to 102.43 per USA dollar as of 5pm NY time.
Stocks fell as investors dumped shares of banks in North America and Europe after the U.S. Department of Justice told Deutsche Bank DBKGn.DE to pay $14 billion to settle an investigation of its selling of mortgage-backed securities.
The dollar index, which tracks the greenback against a basket of six major peers, also remained steady at 95.308, and set to end the week little changed.
Brent crude futures fell $1.25, or 2.7 percent, to settle at $45.85 per barrel, while US crude slid $1.32, or 2.9 percent, to settle at $43.58. US crude retreated 0.6 percent to $43.66, poised to end the week down 4.8 percent. On Wednesday, global stock markets were struggling to recover – emerging market (EM) equities have suffered their sharpest sell-off since late June – while the strain on bond markets was still palpable. Elsewhere, the Australian dollar inched up 0.1 percent to $0.7520 after posting a 0.7 percent gain on Thursday.
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In Sydney, Woodside Petroleum was down 0.7 percent, while Hong Kong-listed CNOOC shed 1.1 percent and PetroChina lost one percent.
