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Business Standard
9 hours ago
- Business
- Business Standard
Yen upbeat as Japan's core inflation accelerates
The Japanese yen stays upbeat against the dollar on Friday following higher inflation data that increases possibility of rate hike by BoJ. Data released earlier today showed that Japan's annual consumer price index (CPI) remained well above the Bank of Japan's (BoJ) target of 2% in May. Japans consumer prices excluding fresh food quickened for a third month to 3.7% from a year earlier in May, according to a Ministry of Internal Affairs released Friday. Thats the fastest pace since January 2023. Food inflation was again a major driver, with the price of rice the nations staple food jumping 102% from a year earlier. Service prices, a metric closely watched by the BOJ, rose 1.4% from a year earlier, slightly more than 1.3% in April. However, the BoJ earlier this week signaled its preference to move cautiously in normalizing still-easy monetary policy and decided to slow the pace of reduction in its bond purchases from fiscal 2026 that could limit gains in the counter. Nevertheless, safe haven demand amidst persistent trade-related uncertainties and rising geopolitical tensions in the Middle East could keep the yen supported. Currently, USDJPY is seen quoting at 145.29, down 0.14% on the day. Meanwhile, on the NSE, JPYINR futures are down 0.93% at 59.42.
The Star
12 hours ago
- Business
- The Star
Caution by BoJ likely to keep Japanese capital overseas
Japan still has plenty of financial muscle with a net US$3.5 trillion in overseas stocks and bonds. — Reuters The Bank of Japan (BoJ) is taking a more cautious approach to reducing its balance sheet, meaning Japanese capital invested overseas is less likely to be coming home anytime soon. In the face of heightened economic uncertainty and recent volatility at the long end of the Japanese Government Bond (JGB) curve, the BoJ announced on Tuesday that it will halve the rate of its balance sheet rundown in fiscal year 2026 to 200 billion yen or about US$1.4bil a quarter. The central bank began gradually shrinking its bloated balance sheet 18 months ago and last August began an even more gradual interest rate-raising cycle, representing a historic shift after years of maintaining ultra-low and even negative nominal rates. All else being equal, this modest tightening would be expected to narrow the yield gap between Japanese and foreign bonds, making JGBs more attractive to domestic and foreign investors while also strengthening the yen. So why hasn't the Japanese capital been coming home? In part, because Japan's real interest rates and bond yields remain deeply negative, and the latest BoJ move suggests this is likely to remain the case for the foreseeable future. The prospect of Japanese real returns staying deeply negative is enhanced by current inflation dynamics. Price pressures Inflation in Japan is the highest in two years by some measures and may prove sticky if Middle East tensions continue to put upward pressure on oil prices. Japan imports around 90% of its energy and almost all of its oil. Japan's yield curve could also potentially flatten from its recent historically steep levels if the BoJ's decision caps or lowers long-end yields. And the curve will flatten further if the BoJ continues to 'normalise' interest rates – something BoJ governor Kazuo Ueda insists is still on the table, although markets think the central bank is on hold until next year. Either way, a flatter yield curve won't be particularly appealing to Japanese investors who may be considering pulling money out of the United States or European markets. And there is a lot of money to repatriate, meaning even marginal shifts in Japanese investors' positioning could be meaningful. Assets abroad While Japan is no longer the world's largest creditor nation, having recently lost the crown to Germany after holding it for more than three decades, it still has plenty of financial muscle with a net US$3.5 trillion in overseas stocks and bonds, the highest total ever. Analysts at Deutsche Bank estimate that Japanese life insurers and pension funds hold more than US$2 trillion in foreign assets, around 30% of their total assets. What would prompt Japanese investors to repatriate? In a deep dive on the topic last month, JP Morgan analysts said several stars would have to align, namely a sustainable rise in long-term Japanese interest rates, an improvement in the country's public finances, and steady yen appreciation against the US dollar. That's a tall order. But if this were to materialise, and banks and other depository institutions reverted to pre-'Abenomics' asset allocation ratios of 82% domestic bonds and 13% foreign securities, repatriation flows from these institutions alone could amount to as much as 70 trillion yen. That's just under US$500bil at current exchange rates. That's not JP Morgan's base case though, certainly not in the near term. But over the long term, they think some reversal of the flow of capital from JGBs into US bonds over the last decade or more is 'plausible'. The BoJ's decision on Tuesday probably makes the prospect of any significant capital shift less plausible, though, at least for now. — Reuters Jamie McGeever is a columnist for Reuters. The views expressed here are the writer's own.
Yahoo
a day ago
- Business
- Yahoo
Yen slides ahead of Bank of Japan policy decision
The yen fell against the dollar ahead of a Bank of Japan decision Tuesday, with officials expected to hold interest rates steady but tweak their bond purchase policy. The central bank last year said it would scale down its huge purchases of government bonds -- part of attempts to move away from a quantitative easing programme designed to banish stagnation and harmful deflation. It is now considering slowing the pace of these cutbacks, analysts and media reports said. "Slowing the bond taper will help keep interest rates lower than otherwise, providing support to the economy amid heightened trade uncertainty," Carol Kong, an analyst at the Commonwealth Bank of Australia, told AFP. Speculation of such a move "intensified after a surge in the 'super long' Japanese Government Bond (JGB) yields in recent months", she explained. The dollar surged higher than 145 yen in morning trade, compared with levels of around 144.30 yen on Monday. "The recent softening of the yen could already partly reflect expectations for a cautious policy update from the BoJ... alongside negative spill-overs for Japan from the Middle East conflict," said Lee Hardman of MUFG. The BoJ is expected to keep its main interest rate around 0.5 percent, lower than the US Federal Reserve's 4.25-4.5 percent. Bank officials began lifting borrowing costs last year after nearly two decades of ultra-loose monetary policies aimed at kick-starting torpid economic growth in Japan. "The BoJ will likely hold off on rate hikes until there is further clarity on US trade policy," Kong said. Japan, a key US ally and its biggest investor, is subject to the same 10 percent baseline tariffs imposed on most nations plus steeper levies on cars, steel and aluminium. Trump also announced an additional 24 percent "reciprocal" tariff on Japan in early April but later paused it along with similar measures on other countries. Prime Minister Shigeru Ishiba said Monday there had been no breakthrough on a US trade deal after talks with President Donald Trump on the sidelines of the G7 summit in Canada. "We still believe the Bank may hike rates in the second half of the year as it remains committed to normalising monetary policy," said Katsutoshi Inadome of SuMi TRUST. "We expect that domestic demand will remain solid and that there is a chance economic conditions will improve to the point where the BoJ can consider interest hikes," he said. kh-jug-kaf/dan Sign in to access your portfolio
Arabian Post
a day ago
- Business
- Arabian Post
Central banks' decisions loom amidst global uncertainty, Octa Broker offers its view
KUALA LUMPUR, MALAYSIA – Media OutReach Newswire – 16 June 2025 – This week is set to be a pivotal one for financial markets in general and Forex market in particular as four major central banks—the Bank of Japan (BoJ), the U.S. Federal Reserve (Fed), the Swiss National Bank (SNB), and the Bank of England (BoE)—are scheduled to announce their latest decisions on interest rates. Their policy statements, spread across Tuesday, Wednesday, and Thursday, will be under intense scrutiny from traders and investors alike. The reason for this heightened attention is simple: relative monetary policy is a primary driver of currency exchange rates, and any shift in a central bank's stance can trigger significant market movements. However, this week's announcements arrive amidst a backdrop of considerable global uncertainty, stemming from the flared-up conflict between Israel and Iran. This geopolitical tension in the Middle East has already exerted an upward pressure on oil prices, leading to increased concerns about inflation and raising the probability of a global economic recession. Consequently, investors might be surprised by the tone and content of the upcoming policy statements. While the prevailing market assumption is that most central banks (with the notable exception of the SNB) will maintain their current interest rates, the escalating inflation risks could prompt some central banks to adopt a more hawkish stance than anticipated, potentially leading to unexpected shifts in their monetary policy outlooks. This makes it more crucial than ever for market participants to closely monitor all announcements, accompanying policy reports, and subsequent press conferences for any clues regarding future policy trajectories. Bank of Japan BOJ's decision will hit the wires in the early hours during the Asian trading session on 17 June. Unlike other major banks, BoJ has embarked on a path toward monetary tightening. Last year, it concluded its yield curve control (YCC) policy and initiated a gradual reduction of its substantial bond purchases. These actions were part of an ongoing effort to transition the Japanese economy away from a decade of significant stimulus. Furthermore, the BOJ increased short-term interest rates to 0.5% in January, based on the assessment that Japan was progressing towards sustainably achieving its 2% inflation target. ADVERTISEMENT However, potential risks to Japan's export-dependent economy stemming from U.S. tariffs have led to a revision in market expectations regarding the timing of the BOJ's next rate hike. In addition, the Japanese bond market has been under severe stress lately, as long-term yields reached record high. Specifically, in Japan's 20-year government bond auction on 20 May, the demand was very weak and the bid-to-cover ratio fell to just 2.50, its lowest point since 2012. Consequently, market attention is currently focused on whether the BOJ will maintain or reduce the pace of its current bond tapering. Investors are also keenly awaiting any signals from BoJ Governor Kazuo Ueda concerning the potential resumption of rate increases. The general expectation is that the BOJ will largely stick to its current tapering plan for now, but it may consider a slower pace of reduction starting from the next fiscal year. 'I believe the BOJ may not be able to delay rate hikes for an extended period due to inflationary pressures from elevated food costs, particularly for staple rice, so I think Governor Ueda may deliver a more hawkish tone that the market currently expects', says Kar Yong Ang, a financial market analyst at Octa broker. Indeed, Japan's core inflation has exceeded the BOJ's 2% target for over three years, reaching a more than two-year high of 3.5% in April, largely driven by a 7% surge in food prices. Moreover, the ongoing conflict in the Middle East poses a risk of further increasing Japan's import costs. Kazuo Ueda is expected to hold a news conference at 6:30 a.m. UTC on 17 June to explain the BOJ's policy decision. Federal Reserve The Fed will issue its monetary policy updates at 6:00 p.m. UTC and hold a press conference at 6:30 p.m. UTC. The decision—especially the accompanying Statement—and the latest Economic Projections by the Federal Open Market Committee (FOMC) may potentially surprise the market, resulting in above-normal volatility. ADVERTISEMENT Traders expect the Fed to leave its policy rate unchanged in the range of 4.25–4.50%. However, the market usually moves not because of the decision itself, but rather the new details revealed in the FOMC Statement as well as during the press conference. In addition, traders will be paying close attention to the Fed's economic outlook and the so-called 'dot plot', seeking to understand the central bank's policy trajectory. The FOMC dot plot is a chart that visually represents the projections of each FOMC member for the target range of the federal funds rate. It is updated on a quarterly basis and tends to have a major impact on financial markets, serving as a critical piece of forward guidance that can significantly influence bond yields, equity prices, and currency valuations as investors recalibrate their expectations for future interest rate movements and the overall trajectory of monetary policy. 'It is not going to be an easy decision for the Fed', says Kar Yong Ang. 'They are balancing between a weakening labour market, still elevated inflation, uncertainty regarding trade tariffs—and now the Middle East crisis and the oil price shock. Overall, the market is positioned for a relatively dovish Fed, so traders will be waiting for hints about whether the Fed might be poised to lower rates in the coming months. And this is where the market may be disappointed'. In other words, there's a significant risk that Jerome Powell, the Fed Chairman, could adopt a more hawkish stance than the market anticipates. This would likely lead to considerable downward pressure on equity prices and present substantial upside risks for the U.S. Dollar Index (DXY). At the same time, even if the Fed does deliver a hawkish message, gold (XAUUSD) is unlikely to see a significant downturn, as the ongoing conflict between Israel and Iran will almost certainly sustain strong safe-haven demand, counteracting any typical negative pressure from a hawkish Fed. Swiss National Bank SNB is due to make its policy decision on 19 June. It is the only central bank whose rate cut is almost 100% guaranteed. The debate is not whether the SNB will cut the rates, but to what extent. Recent disinflationary pressures within the Swiss economy have led markets to anticipate a larger-than-usual 50-basis point (bps) reduction in rates. 'Despite the Swiss headline CPI [Consumer Price Index] recently turning negative, I think the SNB will still opt for a smaller, 25-bp cut. Inflation shock coming from the Mideast conflict and policymarkers' recent rhetoric suggest that the SNB will be careful not to overshoot with policy easing', says Kar Yong Ang. Indeed, SNB board member Petra Tschudin recently highlighted that achieving medium-term price stability is more critical to their policy choices and that a single data point (i.e., latest inflation report) is not substantial enough to alter the current policy outlook. Moreover, with the SNB's policy options being quite narrow now (the deposit rate bottomed out at -0.75% during the previous rate-cutting cycle), a 25-basis point rate cut looks like the most sensible choice for now. On balance, the most probable outcome remains a 25bp rate cut. While the Swiss franc (CHF) might experience an initial sharp rise as the market corrects its 50bp cut predictions, this reaction would likely be fleeting. The central bank's accompanying dovish commentary would likely ensure that any strengthening of the franc is quickly reversed. Bank of England BoE will announce its monetary policy decision on 19 June, a few hours after the SNB. At its previous meeting in March, the BoE kept its key rate at 4.50% with only one Monetary Policy Committee (MPC) member calling for a rate cut. In its guidance, the BoE stressed that it was taking a 'gradual and careful approach' to rate cuts due to a lack of visibility about the inflation outlook because of the rise in trade tensions. Since then, however, the U.S. and the U.K. agreed to a new trade deal, but the U.K. CPI continued to rise, while GBP/USD reached a fresh three-year high. 'The latest U.K. CPI figures will be released on Wednesday, before the BoE decision, and I actually think that they will have a much bigger impact on the market than BoE's verdict itself', says Kar Yong Ang, adding that if the CPI report indicates a slowdown in inflation, the optimal strategy would be to go long EUR/GBP. Overall, the BoE is expected to keep interest rates unchanged, especially considering that ongoing hostilities in the Middle East have introduced new long-term inflation risks. Indeed, according to the latest interest rate swaps market data, investors are pricing in only a 10% chance of a 25-bp rate cut by the BoE this Thursday. However, traders are advised to monitor any shift in BoE's MPC rate voting. Previously, eight members voted to hold the rates unchanged, but this week's decision may feature more doves than hawks. ___ Disclaimer: This press release does not contain or constitute investment advice or recommendations and does not consider your investment objectives, financial situation, or needs. Any actions taken based on this content are at your sole discretion and risk—Octa does not accept any liability for any resulting losses or consequences. Hashtag: #Octa The issuer is solely responsible for the content of this announcement. Octa Octa is an international CFD broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services used by clients from 180 countries who have opened more than 52 million trading accounts. To help its clients reach their investment goals, Octa offers free educational webinars, articles, and analytical tools. The company is involved in a comprehensive network of charitable and humanitarian initiatives, including improving educational infrastructure and funding short-notice relief projects to support local communities. In Southeast Asia, Octa received the 'Best Trading Platform Malaysia 2024' and the 'Most Reliable Broker Asia 2023' awards from Brands and Business Magazine and International Global Forex Awards, respectively.
Kuwait Times
2 days ago
- Business
- Kuwait Times
Bank of Japan holds rates, will slow bond purchase taper
TOKYO: The Bank of Japan kept interest rates unchanged Tuesday and said it would taper its purchase of government bonds at a slower pace, as trade uncertainty threatens to weigh on the world's number four economy. The central bank has spent many years buying up Japanese Government Bonds (JGBs) to keep yields low as part of an ultra-loose monetary policy aimed at banishing stagnation and harmful deflation. But it began moving away from that easing program last year, as inflation began to pick up and the yen weakened. After hiking interest rates for the first time since 2007, the bank began winding down its JGB purchases. It has since lifted borrowing costs several times to 0.5 percent, their highest in 17 years, and continued to buy fewer bonds. However, analysts say uncertainty sparked by US President Donald Trump's trade war has led bank officials to hold off on more hikes - and on Tuesday they held rates again, while saying they would slow the pace of JGB reductions. 'This measure was taken in order to avoid the possibility of an abnormal volatility in government bond yields, which would have a negative impact on the economy,' bank governor Kazuo Ueda told reporters. 'We believe that it is appropriate for the Bank of Japan to reduce its JGB purchases in a predictable manner, while ensuring flexibility,' he added. Bond purchases will be cut in principle 'by about 200 billion yen each calendar quarter from April-June 2026' - from around 400 billion yen ($2.8 billion) per quarter, the bank's policy statement said. The BoJ's main rate is still much lower than the US Federal Reserve's 4.25-4.5 percent. 'Japan's economic growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits,' the bank said. However, 'factors such as accommodative financial conditions are expected to provide support'. 'We still believe the Bank may hike rates in the second half of the year as it remains committed to normalizing monetary policy,' Katsutoshi Inadome of SuMi TRUST said ahead of the policy decision. Carol Kong, an analyst at the Commonwealth Bank of Australia, told AFP the BoJ 'will likely hold off on rate hikes until there is further clarity on US trade policy'. 'While wage growth and consumer price inflation are solid, there are questions over whether domestic demand can withstand additional tightening,' she added. Japan, a key US ally and its biggest investor, is subject to the same 10 percent baseline tariffs imposed on most nations plus steeper levies on cars, steel and aluminum. Trump also announced an additional 24 percent 'reciprocal' tariff on the country's goods in April but later paused it along with similar measures on other trading partners. Prime Minister Shigeru Ishiba said Monday there had been no breakthrough on a trade deal after talks with Trump on the sidelines of the G7 summit in Canada. Ueda said policymakers would closely watch the economic impact of the conflict between Israel and Iran, which has buoyed oil prices. At the same time, 'the impact of various trade policies will start to become more pronounced from now on,' he said. 'It may weigh on corporate earnings, especially manufacturers.' Such a trend, if continues, could impact wages and prices in Japan, he said. 'We wish to monitor both factors carefully.'- AFP
