• Bank of Japan kept rates unchanged, lowered CPI forecasts
  • NZD on the back foot again as business confidence sinks
  • Chinese PMIs illustrate weaker numbers across the board

The Bank of Japan meeting was in theory the biggest event during the Asian session even as nobody had expected adjustments to monetary policy. As per expectations, the BoJ left its main interest rate unchanged at -0.1% along with the target for the 10Y yield around 0%. On top of that, the Bank kept its pledge to buy JGBs so that its holdings increase at annual pace of around 80 trillion JPY. The revised forecasts as far as GDP and CPI are concerned were a bit more interesting. They are as follows:

  • GDP 2017/2018: up from 1.8% to 1.9%
  • GDP 2018/2019: unchanged at 1.4%
  • GDP 2019/2020: unchanged at 0.7%
  • CPI 2017/2018: down from 1.1% to 0.8%
  • CPI 2018/2019: down from 1.5% to 1.4%
  • CPI 2019/2020: unchanged at 1.8%

Even though downward revisions when it comes to inflation should not be surprising notice that the BoJ misses the target even when we take account of a long-term as CPI is seen below 2% until 2020. On the other hand, the inflation goal remains elusive and for that reason the BoJ could be pushed to the wall as soon as next year when a scarcity of assets could aggravate BoJ’s efforts aimed at bringing back CPI on an appropriate track.

Furthermore, the BoJ wrote in its report that risks to the economy are roughly balanced, downside risks to prices are large though. The Bank mentioned subdued household inflation expectations as one of the reason constraining price pressures across the economy. We may also add that wage pressure holds onto low levels as well which undercuts real wage growth even as the pace of price growth is so lackluster. One may conclude that a lack of higher inflation in Japan might be somewhat cryptic when we take into account the tight labor market which in theory ought to exert upward pressure on wages. It leaves conjectures that some slack might be still in place which hinders wages while aggregated demand might be too weak.

link do file download linkNZ business confidence sank in October to the lowest since 2015. Source: Macrobond, XTB Research

Moving on, the New Zealand dollar is the poorest currency in the G10 basket losing against the greenback 0.2%. The kiwi got a blow during the Asian session which revealed that business confidence sunk this month on political concerns. The ANZ gauge tumbled from 0 to -10.1 which is the lowest level since September 2015. Otherwise, the activity outlook measure slid from 29.6 to 22.2 leaving the NZD exposed to further losses. At last the new NZ finance minister said overnight that a drop in the value of the kiwi is ’natural’ after a change in the government. He also added that he doesn’t fret about so.

Finally, the Chinese PMI for October turned out to be weaker than expected. Manufacturing PMI came in at 51.6 missing the forecast at 52 while services PMI showed 54.3 compared to the estimate at 55.4. These prints could have also added some downside pressure to the NZ dollar, the AUD remained barely changed though.

link do file download linkMeanwhile the USDJPY is edging lower in early trading playing down the BoJ’s fallout. Once the ongoing move keeps going, it could take the price toward 111. Source: xStation5