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TOKYO: The Bank of Japan is expected to maintain its massive stimulus programme on Thursday and signal its readiness to ramp up monetary support if growing risks such as the escalating U.S.-China trade war threaten the economy’s modest expansion.
Many BOJ policymakers are wary of using their dwindling policy ammunition any time soon as years of ultra-low interest rates strain financial institutions’ profits, say sources with knowledge of the central bank’s thinking.
But the darkening outlook is also forcing them to brace for the likelihood of another economic downturn and brainstorm ideas on how to respond, they say.
Adding to the uncertainty are heightening market expectations the U.S. Federal Reserve will start to cut interest rates to fend off the damage from the trade war with China.
While such rate cut expectations have kept a floor on stock prices so far, an actual cut by the Fed could push down the dollar and trigger an unwelcome yen spike that hurts Japan’s export-reliant economy, some analysts say.
“There may be no immediate need for action,” one of the sources said. “But with uncertainty over the outlook so high, the BOJ would need to think about how to respond if a shock hits the economy.”
At the two-day rate review ending on Thursday, the BOJ is widely expected to keep its short-term rate target at -0.1% and a pledge to guide the 10-year government bond yield around zero percent. The Fed meets this Tuesday and Wednesday.
The BOJ board is likely to maintain its view Japan’s economy continues to expand moderately as a trend, but debate whether its projection of a rebound in overseas growth later this year remains valid, the sources say.
At a post-meeting news conference, BOJ Governor Haruhiko Kuroda is likely reinforce his view the central bank is ready to deploy additional stimulus if the economy loses momentum to hit its 2% inflation target.
Japan’s economy expanded an annualised 2.1% in January-March but many analysts predict growth to slow in coming quarters as the U.S.-China trade row hurts global trade. A scheduled domestic sales tax hike in October may also cool consumption, they warn.
Many in the BOJ prefer to wait for more data, such as the central bank’s “tankan” quarterly business sentiment survey due July 1, to see how deeply the trade tensions could hurt domestic demand, the sources say.
“Domestic demand, including capital expenditure, is still firm. The key is to see whether this will remain the case,” a second source said.
Japan’s annual core consumer inflation hit 0.9% in April, remaining distant from the BOJ’s target, despite years of heavy money printing by the central bank.
Many analysts say the BOJ has very little tools left to fight the next recession, with its negative rate policy hurting financial institutions’ margins and long-term yields already hovering below zero. – Reuters
TOKYO: – Asian shares got off to a shaky start on Monday as investors were cautious ahead of a closely-watched Federal Reserve meeting, while political tensions in the Middle East and Hong Kong kept risk-appetite in check.
MSCI’s broadest index of Asia-Pacific shares outside Japan opened slightly lower and was last little changed, while Japan’s Nikkei average stood flat.
Wall Street stocks ended lower on Friday as investors turned cautious before this week’s Fed meeting, while a warning from Broadcom on slowing demand weighed on chipmakers and added to U.S.-China trade worries.
“The week ahead is likely to provide some clarification for investors on three fronts that have been a source of uncertainty. The FOMC meeting, with updated forecasts, is centre stage,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
A private gauge on eurozone’s manufacturing sector as well as U.S.-China trade frictions will also be watched closely, Chandler said.
Financial markets have been sideswiped since a sudden escalation in Sino-U.S. trade tensions in early May, with growing anxiety among investors that a protracted standoff could tip the global economy into recession.
Adding to the tensions between the world’s two biggest economies, U.S. Secretary of State Mike Pompeo told Fox News on Sunday that U.S. President Donald Trump would raise the issue of Hong Kong’s human rights with China’s President Xi Jinping at a potential meeting of the two leaders at the G20 summit in Japan later this month.
On Sunday, hundreds of thousands of black-clad protesters in Hong Kong demanded that Beijing-backed city leader Carrie Lam step down over her handling of a bill that would have allowed extradition to China, resulted her to issue a rare apology.
Geopolitical tensions in the Middle East added another layer of uncertainty for investors after the United States blamed Iran for attacks on two oil tankers in the Gulf of Oman last week.
Hopes that global central banks will keep the money spigot open have helped to temper some of the fears, and all eyes are on the Fed’s two-day meeting starting on Tuesday.
Strong U.S. retail sales data on Friday rolled back expectations of a Fed rate cut at this week’s meeting to 21.7%, from 28.3% on Thursday, according to CME Group’s FedWatch tool. But bets of an easing at the July meeting remain high at 85%.
The Bank of Japan also meets this week and is widely expected to reinforce its commitment to retain a massive stimulus program for some time to come.
The retail report also sent short-dated U.S. Treasury yields higher, flattening the yield curve.
Benchmark 10-year notes was last at 2.091%, while two-year bond yield edged up, shrinking the spread between two- and 10-year yields to 23.6 basis points compared to more than 30 earlier this month.
A Reuters poll showed a growing number of economists expect the Fed policymakers to cut interest rates this year, although the majority still see it holding steady.
In currency markets, the dollar index against a basket of six major currencies climbed to 97.583 on Friday, its highest level in almost two weeks, after the U.S. retail sales data eased fears that the world’s largest economy is slowing sharply.
The index last stood at 97.511, while the euro fetched $1.1220, near the lower end of its weekly trading range.
Oil extended gains on Monday after the attacks on two oil tankers last week raised concerns about potential supply disruptions, but prices remained on track for a weekly loss on fears that trade disputes will dent global oil demand.
Brent futures rose 0.2% to $62.13 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 0.2% to $52.60.
Spot gold eased 0.1% to $1,340.25 an ounce after hitting a 14-month peak on Friday.
Bitcoin jumped overnight to $9,391.85, its highest level in 13 months. It was last quoted at $9150.15. – Reuters
TOKYO, June 17 — The dollar hovered near a two-week high early today, as strong US retail sales data tempered some of the fears about a sharp downturn in the world’s largest economy. That provided some relief to the dollar ahead of the Federal…
KUALA LUMPUR, June 16 — Local institutions emerged as net buyers of Malaysian equities post-Hari Raya celebrations, injecting RM139.2 million versus a net sell of RM306.72 million during last week’s holiday-shortened trading week. Bank Islam…