Although the Federal Reserve is taking centre stage on the economic release docket this week, there are some ancillary releases that financial markets will have to contend with leading up to Thursday, one of which was the Bank of Japan’s monetary policy decision that was released overnight. As had been the consensus, Japan’s central bank left monetary policy unchanged, keeping its asset buying program steady despite the challenges Japan is having in generating any upward pressure on consumer prices. Though Governor Kuroda didn’t give any indication the BoJ was getting closer to adjusting policy, he did say there wouldn’t be any hesitation to alter the current rate of Quantitative Easing should their price target be threatened. At the same time, Kuroda mentioned that the weakening of the domestic currency isn’t always guaranteed to push up consumer prices, and that he didn’t think prices would stop rising if the depreciation of the yen stalled out. The next month and a half will be key for the Bank of Japan, as it will be interesting to see how much longer the central bank can keep policy unchanged if there is a continued deterioration in household spending that creates a negative feedback loop for consumer prices. The yen has been the best performing of the majors against the greenback this morning, with USDJPY tumbling after the decision to keep policy unchanged caused a short-covering rally in the yen. The Nikkei had run higher in anticipation there was the potential for Kuroda and the BoJ to tinker with the current monetary policy, but gave back all of its previous gains on the session to close at basically the unchanged mark.
Across the pond, European equities are displaying positive price action heading into the North American cross, though the FTSE is lagging and is down by just 0.1% as we go to print. The pound is essentially unchanged from yesterday’s close, unable to generate any positive upward momentum after inflation numbers for August came in bang on expectations. Headline CPI slid back to a flat reading for August when compared to twelve months prior, but did little in the way of influencing price action given monthly figures also came out as forecast with an uptick of 0.2%. Ahead of retail sales in the US this morning, the pound is flat against the big dollar, and although there may be a knee-jerk reaction in response to the retail sales figures, all eyes continued to be focused on Thursday’s big release.
As we get set for the North American open, equity futures are pivoting around the unchanged mark, held in check by the strength of the yen from the associated inaction from the Bank of Japan overnight. Crude oil is seeing somewhat of a bid tone emerge across its tape, with the front-month WTI contract edging up over the $44 level. The loonie is still confined to yesterday’s range, but could likely see some movement if US retail sales deviates from the median analyst forecast. Expectations are that the positive consumer spending numbers to kick off the third quarter are likely to continue, with the August numbers showing steady improvement on the headline reading at 0.3%, and 0.2% when looking at the core measure. A sharp deviation from expectation could provide an attractive trading opportunity for corporate hedgers positioning ahead of the FOMC, as today’s numbers are unlikely to influence Fed policy from an overall decision standpoint, but could provide the market with some short-term volatility.
Further reading:
EURUSD Bounces from High, GBPUSD Trades into Resistance – Elliott Wave Analysis
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