Core consumer prices, which include energy but exclude fresh food, fell an annual 0.5 per cent in July, the weakest in more than three years, although a BOJ measure of prices showed a rise of 0.5 per cent.
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Traders’ expectations of a rate hike from the Fed at its meeting next week rose slightly to 15 percent from 12 percent on Thursday, according to CME Group’s FedWatch program.
On Aug. 25, Kansas City Fed President, Esther George said that she believed it was time to raise interest rates.
Dollar/yen eases, on track for 0.7 pct weekly loss * Weak US data further reduce US rate hike prospects * Bounce in commodities after rough patch supports Aussie * Focus on BOJ and Fed policy meetings on Sept 20-21 (Updates prices, adds comments) By Masayuki Kitano and Shinichi Saoshiro SINGAPORE/TOKYO, Sept 16 (Reuters) – The dollar eased versus the yen on Friday, struggling to gain traction after lacklustre USA economic data further dampened already low expectations for a Federal Reserve interest rate hike next week.
Both the European Central Bank and Britain’s Bank of England kept monetary policy unchanged this month, although both with a bias towards further easing action later in the year. “I think circumstances call for a lively discussion next week”, he continued. In anticipation of what should have been a stretch of hawkish priming, the end of August saw rate hikes odds around 45% for September and 60% for December. The past week’s data included retail sales falling by more than expected last month and producer prices, a sign of future inflation, unchanged. The comment reduced the chance of a Fed rate increase as early as next week. So if it were to act on rates before the end of the year, well, the week ahead would be the week for it to do so. While their statement says “the actual path of the federal funds rate will depend on the economic outlook as informed by the incoming data”, their views of about what indicators mean for policy strategy diverge. A pause, with an upgraded view of the economy, could put the Fed in an awkward position in December if not all data is strong, it suggested.
At the previous policy meeting ended July 29, the BOJ made a decision to nearly double its purchases of exchange-traded funds to an annual pace of about ¥6 trillion from around ¥3.3 trillion. After September, the Fed’s policy-setting committee meets on November 1-2, a week before Americans vote for their next president, before its last session of the year on December 13-14. This is because, in an elderly society like Japan, a negative rate can cause a drop in long-term yield as well as pension value, and hence seriously lower household consumption and finally economic growth.
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As for the BoJ, reports last week that Japan’s central bank was considering more monetary easing and cutting rates further into negative territory initially weighed on the yen. “We see no real reasons for why we’d get a big shift, so more of the same, consistent with modest to mediocre ongoing growth of around one and a bit percent”.
