TP Asia-Pacific FX news wrap: Awaiting the Bank of Japan statement

TP Asia-Pacific FX news wrap: Awaiting the Bank of Japan statement
  • Friday, 22 September 2023 | 3:39 AM GMT

Ahead of the much-awaited BoJ statement today we had inflation data from Japan for August. Once again the levels of underlying inflation are at high levels (for Japan):

  • The ‘core’ inflation rate, which excludes fresh food, has reached 3.1%, surpassing the expected 3.0% and consistently exceeding the Bank of Japan’s 2% target for 17 consecutive months. Despite the Bank of Japan repeatedly characterizing these elevated levels as temporary, it’s hard to imagine being a Japanese household grappling with the mounting cost of living. If I were in that position, I might even contemplate organizing a group and voicing my concerns at the BOJ headquarters. Seventeen months hardly seem ‘transitory.’
  • If you find that figure high, consider the ‘core-core’ rate, which eliminates the influence of both volatile fresh food and fuel prices, aligning more closely with the US measure of core inflation. Astonishingly, it stands at 4.3%. In such a scenario, perhaps two pitchforks would be warranted.

The USD/JPY pair showed minimal reaction, with a slight uptick, hovering just below 147.60. However, a more substantial shift occurred later as US bond yields remained consistently elevated. The 10-year yield surged to 4.5%, marking its highest level since 2007 – a year we all remember for the Global Financial Crisis and its aftermath.

JGB yields ticked lower ahead of the BoJ.

The USD saw modest gains against the EUR and GBP, while the AUD, NZD, and CAD remained relatively stable or even strengthened against the US dollar, as per the latest updates.

In today’s data releases, we had preliminary PMI figures from Australia and Japan, along with trade balance data from New Zealand (details in the bullets above).

During the session, Chief Economist Lane of the European Central Bank delivered a speech in which he highlighted that the transmission of ECB monetary policy to broader financing conditions and the real economy is firmly taking hold. If his assessment proves accurate, it could ease the pressure for further interest rate hikes, albeit to a small extent.

Positive news emerged on the Australian front as the LNG strike has been resolved. Unions and Chevron have come to an agreement, leading to the cessation of industrial action.

Additionally, the Yuan strengthened on reports that certain Chinese banks have been selling US dollars again, causing USD/CNH to decline from approximately 7.3160 to below 7.2970 at the time of this update.

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