The Global Markets Weekly – 9/5/14

Posted September 9, 2014 by rvillareal

BOJ Barriers Lessened?

As generally expected, the Bank of Japan left policy settings unchanged at its September meeting. But, there was a clear degradation in the Central Bank’s economic assessment, with housing investment no longer described as having “remained resilient as a trend.”  Rather, after a run-up in activity before the April 1 tax jump, “a decline following the front-loaded increase has continued.”[private]

House purchases, where the yen cost of the tax increase would be very large, were heavily boosted for months before April 1, so an extended phase of under-buying was probably to be expected.    Meanwhile, and critically, both private consumption and industrial production were still seen as being healthily on a “trend,” with the former “resilient” and the latter described as having “continued to increase moderately.”

Both descriptions will seem a bit threadbare if numbers do not improve soon, but Governor Kuroda, as usual, exuded confidence in his post-meeting press conference, attributing growth disappointments to “various one-off factors,” including unusually rainy weather in July—and, still to be reflected in the numbers, heavy August storms.

Most eye-catching among Kuroda’s remarks were some on the yen.  Referring to the diminishing easing bias in U.S. monetary policy, and to the fact that “ultra-loose monetary policies are set to continue in Europe and Japan,” he noted that “it won’t be that surprising if the dollar strengthens,” and went on to say “I don’t think dollar rises against the yen would be particularly negative for Japan’s economy.”

Japan’s policymakers and business leaders are seriously divided on the issue of gains to be realized from new yen weakness, and Kuroda’s less-than-full-throated comments are unlikely to mark a significant turn in BOJ policy.  Still, barriers to further easing, should it be judged necessary down the road, are clearly lessened.

• U.S.: The major report this week will be August advance retail sales (Fri), a read on spending behavior midway through the third quarter.
• Eurozone: It is unclear how weak the Eurozone economy has been in underlying terms. More will be learned from new national output numbers, culminating in Eurozone Industrial Production (Fri).
• UK: Up until the last week, the Sept. 18 Referendum, in which Scotland will decide whether to make itself independent, has hardly troubled markets.  Opinion polls this week may be the focus.
• Japan: Attention will focus primarily on the revised second-quarter GDP report (Mon), and July machinery orders (Wed).
• Emerging Markets/Regions: In China, key monthly indicators for August arrive this week, with market Consensus seemingly unable to detect/forecast any change from the preceding period.  In Korea, the BOK meets (Thu).  The reasonable expectation is that the benchmark rate will be left unchanged.     In Brazil, the highlight is the release of Minutes from the latest Monetary Council meeting.  It would be surprising for them to reveal movement toward a policy change. In Turkey, the highlight of the week is Q2 real GDP, with a reasonable expectation for some deceleration from Q1.

gmw_0905[/private]