japanese inflation

On a slippery floor

By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  

While the US economy has been surprisingly resilient this year to the Federal Reserve's (Fed) aggressive monetary tightening, we cannot say that we have a similar soothing picture in Europe. The energy crisis, that followed the pandemic, has been hard on Germany. The country needs money when money becomes rare and expensive. Germany decided to suspend the debt limit for the 4th consecutive year – signaling that borrowing in Europe will continue to increase, and the new debt that the Europeans will take on their shoulders will cost significantly higher than a few years ago.  

German bonds fell yesterday on news of yet another suspension of the debt limit. The 10-year German yield advanced to 2.60%, Italy's 10-year yield jumped to 4.40%, the Italian – German yield spread rebounded this week from the lowest levels since September, and the widening yield spread between core and periphery could become a li

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Jackson Hole Meeting Begins! USD/JPY May Be Turning Upside Down Shortly! Japanese Inflation Is Expected To Reach 2.5% In 2022

InstaForex Analysis InstaForex Analysis 25.08.2022 11:02
  So the day has come. Today the Federal Reserve symposium starts in Jackson Hole. The closer the event is, the more cautious the markets are. The USD/JPY pair is falling in the morning, but at the same time retains a huge growth potential. Why is everyone waiting for the dollar rally? On Thursday, the main economic get-together of August begins in the US state of Wyoming - the annual symposium of the Fed. Markets expect that in Jackson Hole, the US central bank will finally reveal its plans for further monetary policy. The culmination of the forum should be Friday's speech by the head of the Federal Reserve. Most analysts believe that Fed Chairman Jerome Powell will confirm the need to continue an aggressive course. This opinion is supported by a lot of hawkish comments from Fed members, which were made ahead of the symposium in Jackson Hole. Officials are still determined to fight high inflation. Of course, there is no denying the fact that recent signs of easing inflationary pressures have caused a sigh of relief from Fed policymakers. However, the path to achieving price stability is far from over, and the central bank is likely to continue to raise interest rates at the same rate. Amid such rhetoric, concerns that the US central bank may be inclined to a slower pace of rate hikes have significantly decreased in recent days. Currently, futures markets estimate the probability of a 75 bps rate hike next month at 60.5%. If tomorrow the Fed chairman gives even the slightest hint that this is real, we will see another enchanting rally of the dollar. However, while uncertainty remains about the Fed's future route, the greenback remains under pressure. This explains its current weakness. The DXY index fell by 0.15% on Thursday morning and retreated from its almost 20-year high of 109.27 to 108.47. And most of all, the "greenback plunged against the Japanese yen. The USD/JPY pair fell by 0.25% to the level of 136.775.     Why does the yen have no chance against the dollar? The Japanese currency benefits from a less sharp increase in Fed rates, since it has already suffered a lot this year from the aggressive course of the US central bank. Recall that the monetary policy of the Bank of Japan remains ultra-soft, despite the global trend of tightening and increasing inflationary pressure in the country. Unlike its colleagues, who are struggling with rising prices by raising interest rates, the BOJ stubbornly keeps the indicator at an ultra-low level. And apparently, the central bank will continue to bend its line. The BOJ's main task is not to suppress inflation, but to restore the economy, which has suffered greatly after the coronavirus pandemic. It is for this reason that the Japanese authorities continue to inject liquidity into the financial system by actively buying government bonds. Despite the measures taken, Japan's economy still cannot fully recover from the recession caused by COVID-19. This was stated today by BOJ board member Toyoaki Nakamura. The official warned that the prospects for the Japanese economy are clouded by another surge in the incidence of coronavirus, continuing supply constraints and a constant rise in commodity prices. He stressed that the BOJ should not abandon large-scale incentives to support the economy and switch to the side of the hawks just because everyone is doing so now. In his opinion, the tightening of monetary policy may become a serious deterrent for business, as a result of which economic growth will again be under threat. Bank Of Japan To Keep Being Dovish? Meanwhile, most analysts believe that the BOJ will stick to its dovish strategy for a long time. A survey conducted by Bloomberg showed that 16 out of 19 experts exclude the possibility of a change in the monetary rate of the BOJ before the expiration of Haruhiko Kuroda's term of office in April 2023. According to experts, the head of the Japanese central bank will stand his ground even if inflation in the country reaches the highest level of 3% in more than 30 years. In order for Kuroda to agree to the normalization of monetary policy, inflation should remain above 3% for at least six months, Bloomberg writes. And this, if you believe the forecasts, will not happen. Japanese Inflation Said To Reach 2.5% In 2022 According to Japanese economists, inflation will reach 2.5% at the end of this year, and by the end of 2022 it may drop to 1%. All this indicates that the BOJ will remain a black sheep among its colleagues. This scenario is extremely unfavorable for the yen. Due to monetary divergence, the Japanese currency has fallen in price against the dollar by almost 15% this year. Therefore, the position of the JPY is unlikely to improve much, even if tomorrow the head of the Fed does not meet the expectations of the markets and signals a slowdown in the pace of tightening. The yen can only benefit from this in the short term. The dollar will still have the main trump cards in its hands – several more stages of raising rates. Long-term review Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/319863
Challenges and Contrasts: Navigating the Slippery Slope of Global Economies

Challenges and Contrasts: Navigating the Slippery Slope of Global Economies

Ipek Ozkardeskaya Ipek Ozkardeskaya 27.11.2023 14:14
On a slippery floor By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   While the US economy has been surprisingly resilient this year to the Federal Reserve's (Fed) aggressive monetary tightening, we cannot say that we have a similar soothing picture in Europe. The energy crisis, that followed the pandemic, has been hard on Germany. The country needs money when money becomes rare and expensive. Germany decided to suspend the debt limit for the 4th consecutive year – signaling that borrowing in Europe will continue to increase, and the new debt that the Europeans will take on their shoulders will cost significantly higher than a few years ago.   German bonds fell yesterday on news of yet another suspension of the debt limit. The 10-year German yield advanced to 2.60%, Italy's 10-year yield jumped to 4.40%, the Italian – German yield spread rebounded this week from the lowest levels since September, and the widening yield spread between core and periphery could become a limiting factor for euro appetite at a time traders should decide whether the EURUSD should appreciate above the 1.10 psychological mark.   As per the European Central Bank (ECB) expectations, the European officials do their best to tame the rate cut expectations in the Eurozone. Belgian central bank governor Pierre Wunsch said yesterday that the ECB won't cut the rates as long as wages growth remains elevated, while the German central bank head Joachim Nagel said that cutting rates too early would be a mistake. A mistake? Maybe. Yet, economic data comes as further evidence that the European economies are not going toward sunny days. Released yesterday, the European PMI figures came in slightly better than expected, but the reading was below 50 for the 6th consecutive month, meaning that activity in the Eurozone contracted for the 6th consecutive month. The Eurozone GDP fell below 0 at the latest reading, while in comparison, the US GDP grew nearly 5%. This is to say that, based on the current data, the Fed has a greater margin for keeping rates steady than their European counterparts. It at least has better credibility. And the Fed's bigger hawkish margin compared to the ECB should keep the euro appetite limited against the US dollar following the rally since the beginning of October.   In the US, despite warnings that the falling US long-term yields will, at some point, trigger a hawkish reaction from the Fed and eventually reverse, the Fed doves remain in charge of the market. The US dollar index struggles to gain traction above the 200-DMA.   The USDJPY remains offered near the 50-DMA after the Japanese inflation advanced to a 3-month high in October (rose to 3.3% level from 3% printed a month earlier). Normally, it would've boosted bets of Bank of Japan (BoJ) normalization, but the BoJ should first awaken from its coma.  In energy, US crude trades near $75/76 region. Downside risks prevail due to speculation that the delayed OPEC meeting could result in Saudi Arabia not doubling its solo production cuts. There is even a slim possibility that they eventually reverse them.   I am wondering if this week's drama is not staged amid poor buying following the news that Saudi would doble its cuts, to cast shadow in Saudi's intention to defend oil prices, to bring attention to OPEC and to Saudi which finally would go ahead and double its production cuts hoping that the market reaction would be stronger than if they had announced the same outcome this weekend. In all cases, deteriorating growth prospects will likely limit the upside potential in oil prices in the medium run. The short run will certainly see more volatility.    

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