Marketmind: Japan jolt as inflation forks
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[September 11, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan
With U.S. markets homing in on this week's critical August inflation
update, Japan threw a curve ball into the piece by signalling a possible
early end to its easy money stance just as other G7 central banks are
mulling an end their tightening.
In a weekend interview, Bank of Japan Governor Kazuo Ueda said the
central bank could end its 7-year-old negative interest rate policy when
achievement of its 2% inflation target is in sight - suggesting the BOJ
is considering official interest rate hikes as well as an early end its
bond-buying, yield cap policy.
"If we judge that Japan can achieve its inflation target even after
ending negative rates, we'll do so," Ueda said.
The comments seemed to catch markets off guard, sending the 10-year
Japanese government bond yield up more than 5 basis points to a 9-year
high above 0.7%. The yen surged 1% against the dollar, knocking the U.S.
currency back more generally on the foreign exchange markets.
Warming to the prospect of higher net interest margins, the Tokyo Stock
Exchange's banking index jumped 4.69% in its sharpest daily gain of the
year and was the top gainer among the 33 industry sub-indexes.
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But the prospect of BOJ tightening and a stronger yen was less welcomed
by other stocks and the Nikkei closed down 0.4%.
Global bond markets were agitated too, with 10-year U.S. Treasury yields
climbing 5bps to 4.30%.
If Japan's does tighten further by yearend, it comes as the Federal
Reserve and European Central Bank rate hike campaigns are coming to
halt. Markets are betting the ECB will at least pause its series of rate
rises at 3.75% when it meets this week - although many think it will be
a close call on Thursday.
Critical for the Fed in its decision making next week will be two key
data points - Wednesday's consumer price report and Thursday's retail
sales.
Futures still see less than a 50% chance of another Fed hike in the
cycle but the inflation picture may start to get messy from here as
favourable annual base effects from oil prices fade.
Irked by the recent rebound in energy prices, headline U.S. CPI
inflation is expected to have picked up pace last month to 3.6% from
3.2% - although the Fed may still be relieved as stickier 'core'
inflation is forecast to ebb 0.4 point to 4.3%, its lowest since 2021.
The extent of the retail sales slowdown from July's red hot reading is
the only question there.
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![](../images/091123PIX/busine57.jpg)
A man walks past the headquarters of Bank of Japan in Tokyo, Japan,
January 17, 2023. REUTERS/Issei Kato
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More generally, stocks were in decent shape on Monday after a rum
start to September and a plethora of mixed macro signals.
Hong Kong was an exception, with a fourth straight day of declines
led by its ailing property sector stocks. Alibaba dropped 4% as
ex-group CEO Daniel Zhang quit and raised concerns about spinoffs of
different units.
News of an expected return of headline Chinese consumer price
inflation to positive territory last month and above-forecast August
lending data helped mainland shares higher, with the yuan bouncing
back from 16-year lows.
European bourses and Wall St futures were also starting the week in
an upbeat mood.
Meta Platforms is working on a new artificial-intelligence system
intended to be as powerful as the most advanced model offered by
OpenAI, the Wall Street Journal reported on Sunday, citing people
familiar with the matter.
Arm, the chip designer owned by SoftBank Group, is close to securing
enough investor support to attain the $54.5 billion valuation it was
seeking in this week's planned initial public offering - the top of
its indicated range - and may push higher.
Arm will likely be able to price the IPO at the top or above its
$47-to-$51-per-share range when its underwriters close their books
on Wednesday on the biggest U.S. stock market debut in two years.
Events to watch for on Monday:
* U.S. Treasury auctions 3-year notes, 3- and 6-month bills
* Bank of England policymaker Catherine Mann speaks in Ottawa
* U.S. corporate earnings: Oracle
(By Mike Dolan, editing by Christina Fincher, mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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