The BOJ Governor Haruhiko Kuroda informed that the country’s major financial institution might apply financial technology known as fintech to its financial operations in the future. The given measure has been already justified by surging influence on global payments, settlements as well as financial services.
The Bank of Japan is geared up towards leading research and analysis for the purpose of promoting fintech in Japan, considering the fact that it’s already facing a number of implications for central banking, as Kuroda revealed at a seminar hosted by the BOJ on fintech on Tuesday.
The BOJ is about to make its best efforts in order to back up the sound development of fintech to spur the welfare of financial service users and also economic activities.
Fintech involves newly enabled technologies, which companies utilize to make financial services more effective.
Japan is currently moving to ease investment limits, which could free up the flow of capital in the national economy already sitting on an estimated $9 trillion in individuals' cash deposits.
Japan August manufacturing output goes up for the first time in six months
Japanese manufacturing activity demonstrated obvious signs of steadying in August. The country’s output surged for the first time for six months. That’s undoubtedly a tentative sign that the national economy might be reviving from a tumble earlier this year, a private poll showed on Tuesday.
In August, the IHS Markit/Nikkei Japan Flash Manufacturing Purchasing Managers Index also known as PMI ascended to 49.6 from a final 49.3 in July on a seasonally adjusted basis.
Additionally, the headline index stood below the 50 threshold, separating contraction from expansion for the sixth month, but the rate of drop was slight.
The index for output edged up to a preliminary 50.6 from 49.4 last month. While marginal, it would simply point out to the first soar since February when confirmed in revised data.
Besides this, output dared to expand for the first time for six months. Simultaneously, companies also saw softer drops in total new work as well as export sales.
The focus of the market today is the result of the periodic policy meetings of Reserve Bank of Australia (RBA). At the July meeting, RBA kept rates at 1.75% and suggested the possibility of easing further monetary policy. Since that meeting, the Australian economy showed mixed signals with expanding manufacturing activity and increasing inflation. Meanwhile, consumer confidence declined and unemployment rose. According to a Reuters survey, only 60% of analysts predict that the RBA will cut interest rates from 1.75% to 1.5%. In the case of interest rate cut, exchange rate AUD/USD will drop quickly about 0.7450. Conversely, if policymakers delay monetary easing, rates will rise again above the level 0.76.
One other communications market is waiting today to Prime Minister Shinzo Abe of Japan will announce detailed fiscal stimulus package which was announced last week with a large scale over 28 trillion yen. Last week, Yen rose sharply as the Bank of Japan (BOJ) almost didn't significantly change in the monetary policy meeting in July, contrary to the expectations of the major market for a large-scale monetary stimulus as Japanese government determined to revive the economy, which was always bleak in this country. Analysts forecast USD/JPY may fall to threshold 100 if the market does not receive significant support from the information relating to the fiscal stimulus package of Prime Minister Abe.
Notable evolution yesterday was the strongest fall of the CAD when crude oil prices plunged in the first session of the week and WTI oil price sometimes is below 40 USD/barrel for the first time since April 2016. Oil prices began to plummet since early July due to the oversupply of gasoline and refined petroleum products along with signs of rebounding US crude production. Now, National Oil Company Saudi Arabia (Saudi Aramco) lowers oil price strongestly in years, have raised the question of whether oversupply, which made oil prices plunge in 2 years, extends in the coming months.
Tomorrow, August 3rd, Bank of England (BoE) will announce quarterly economic report and results of the periodic policy meeting. Up to 95% of analysts surveyed predicted that BoE will cut rates from 0.5% to 0.25%. Besides, many analysts also said that the BoE is likely to start again the bond purchase program which was suspended since 2012. British Pound is expected to weaken before the meeting of the BOE and after the agency announces the change in monetary policy.
GBP/USD: SELL: 1.3120, TARGET: 1.3100, STOP-LOSS: 1.3270
Here are the most important details of the Bank of Japan Governor Kuroda’s press conference:
- There will likely be a trend of Japanese economy’s moderate expansion. Inflation will reach 2% target in 2017 fiscal year.
- The BOJ will take additional easing steps if necessary to achieve the price target.
- The BOJ will continue conducting qualitative and quantitative easing (QQE) and negative interest rates as long as needed to meet the inflation target.
- QQE hasn’t reached its limits.
- Future mon pol depends on next month's review of past monetary policy steps.
- The BOJ increased monetary stimulus enough to deal with existing risks.
What did the BOJ do? Details of decision
The Bank of Japan eased policy at today’s meeting, but did less than the market has expected. The regulator doubled purchases of exchange-traded funds (ETF), so that its total holdings will increase at an annual pace of 6 trillion yen ($58 billion), up from the current 3.3 trillion yen. The BOJ also doubled the size of a lending program for local companies to $24 billion. The decision was not unanimous; the vote count was 7 against 2. Japanese central bank cited the Brexit vote, slowdown in emerging economies and market volatility as the reason why it had to act.
At the same time, the regulator kept rates steady and its base money target remained at 80 trillion yen and didn’t change the pace of purchases for other assets including Japanese government bonds. Yet, the BOJ did promise to conduct a thorough assessment of the effects of negative interest rates and its massive asset-buying program.
USD slumps over 1% against JPY amid gloomy BOJ stimulus
On Friday, the major American currency edged down over 1% to three-week minimums against the Japanese yen, following the stimulus measures announced by the BOJ. The BOJ’s plan disappointed financial markets. Meanwhile, traders waited for the release of American economic growth data a bit later today.
During late Asia trade, the currency pair USD/JPY hit 102.72, the pair’s lowest value since July 12. After a while the pair consolidated at 103.69, dropping 1.50%. Besides this, the pair was likely to gain support at 102.41, the minimum of July 12 as well as resistance at 106.54, the peak of July 27.
At the conclusion of its monthly policy gathering on Friday, Japan’s major financial institution announced a moderate surge in purchases of exchange-traded funds, although maintained its base money target at about 80 trillion yen and the pace of purchases for other assets.
The major bank also kept negative interest rates intact at -0.1%.
Additionally, the move ruined hopes for a stimulus package of approximately 28 trillion yen promised by Shinzo Abe, Japan’s Prime Minister earlier in the week to drive the national economy.
On Friday, the Japanese yen earned further on a slew of data from Japan across retail sales, consumer prices, industrial production and household spending and all ahead of a closely-watched major bank policy review.
The currency pair USD/JPY was worth 104.19, showing a 1.03% tumble, while AUD/USD soared 0.36%, trading at 0.7530.
Later during the trading session, the Bank of Japan will disclose its latest monetary policy statement as well as interest rate decision.
Earlier in Japan, in June, household spending edged down 1.1% in month-on-month, compared to an expected 0.4% revenue with year-on-year demonstrating a 2.2% sink. As for national CPI, it slumped 0.4% in June year-on-year, thus matching expectations, while the unemployment rate descended to 3.1% from 3.2%.
Apart from that, in Japan, industrial production headed north 1.9%, which is much better than the 0.7% revenue observed for June month-on-month. Additionally, retail sales sagged 1.4%, slower than the 1.5% drop expected.
On Friday, crude prices remained around April minimums as slowing economic growth threatened to drastically worsen ongoing oversupply of oil as well as refined products.
International Brent crude oil futures were worth $42.78, showing a 8 cent surge from their previous close. Meanwhile, US West Texas Intermediate crude futures traded at $41.16, rising 2 cents.
Brent achieved its lowest value since April during last trading session, hitting $42.56, while WTI boasted another minimum of $40.95 per barrel on Friday. Currently, both crude benchmarks are down approximately 20% since their last high in June.
Due to ongoing oversupply, American bank Goldman Sachs told this week that it didn’t expect a huge recovery in prices any time soon.
Financial experts are still expecting that crude prices will stay within a $45 per barrel to $50 per barrel trading range in mid-2017.
Besides this, some experts told that recent price drops in oil had been heavily overdone, especially as demand is still strong notwithstanding worries over future economic growth.
Gold soars as BOJ notes downside risks to economy
Gold grew during Asia trade as Japan’s number one financial institution moved cautiously in its recent policy review, but indicated that it might act in the future if required.
In New York, December delivery gold futures edged up 0.45%, being worth $1,347.25 per troy ounce. As for September delivery silver futures, they gained 0.57%, trading at $20.307 per troy ounce. At the same time, September delivery copper futures sagged 0.45%, being worth $2.206 per pound.
Market participants were on the lookout for moderate easing measures. While Japan’s prime minister Shinzo Abe disclosed a broad ¥28 trillion stimulus measure on Wednesday, Reuters posted that the Japanese government might only offer as much as ¥7 trillion in direct fiscal stimulus.
Still if Abe appears to be unable to deliver on his promises of jump starting the national economy with a broad stimulus initiative, then the BOJ could feel extra pressure to lower interest rates more into negative territory.
On Friday, Asian shares demonstrated mixed performance with traders waiting for word from the BOJ on the scope for further monetary easing.
The Nikkei 225 soared 0.24% ahead of the latest monetary policy review by the BOJ, while the S&P/ASX index headed north 0.04%.
In China, stocks dipped even as financial experts told that the banking regulator's proposals to restrict investment in equities across wealth-management products will have rather a limited effect on money flowing into the stock market.
The Shanghai Composite Index edged down 0.14%, while in Hong Kong the Hang Seng Index last traded at 0.52%.
Overnight, American shares mostly stood still on Thursday, being in tight, range-bound trade, because a downbeat quarter from Ford Motor Company as well as ongoing drops in crude prices compensated momentum from decent results in the technology sector on the busiest day of second quarter earnings season.
The Dow Jones Industrial Average sagged 15.82, showing a 0.09% dip and hitting 18,456.35.
FTSE 100 drops as Shell, Lloyds sag after earnings reports
Yesterday, British blue-chip shares went down as market participants absorbed a storm of corporate earnings updates with stocks of Royal Dutch Shell PLC as well as Lloyds Banking Group PLC dropping after their data.
The FTSE 100 tumbled 0.1%, being worth 6,746.48, though it had been down by more during the early trading session On Wednesday, the index closed +0.4%, hitting 6,750.43, the best outcome since last August.
The prospect of the US interest-rate hike was helping to get the London benchmark out from that 2016 peak. Late Wednesday, the Fed kept the door open for an interest-rate lift in September, stressing that near-term risks to its outlook have decreased.
Shell stocks sagged 3.2% after the crude major reported a dip in its second-quarter revenue, telling that lower crude prices still remain a serious challenge across the business, especially in the upstream. Its adjusted revenues of $1.05 billion dipped short of a $2.27 billion forecast drawn from a Wall Street Journal survey of experts.
The Bank of England (BoE), European Central Bank (ECB) and most recently, the US Federal Reserve, have all issued their most recent monetary policy statements in the past two weeks. All of these three major central banks opted for inaction – the BoE and ECB refrained from implementing post-Brexit stimulus measures for the time being while the Fed again deferred a long-postponed rate hike. Friday finally brings the Bank of Japan’s (BoJ) highly-anticipated policy statement, which will most likely buck this recent trend of inaction.
On Wednesday, Japanese Prime Minister Shinzo Abe revealed an unexpectedly sizable 28 trillion yen government stimulus package, which placed immediate pressure on the BoJ to follow suit by expanding its stimulus program. The key question weighing now on the global markets, and the yen in particular, is the extent to which the central bank will cooperate with Abe’s aims to boost Japanese economic growth.
Most analysts expect some form of stimulus from the central bank, including possible asset purchases and/or a further interest rate cut, but the uncertainty lies in the magnitude of these actions. This magnitude will likely serve as one of the main drivers of market movement on Friday and into next week for both the Japanese yen and major equity markets. Of course, in the very unlikely event that there is no BoJ action at all, volatility in the markets should be particularly pronounced, potentially leading to a dramatic surge for the yen.
As usual, USD/JPY will be one to watch, as it can serve as a good barometer of yen movement. Another key currency pair that should also see high volatility during this event, however, will be EUR/JPY, especially since Friday also brings a solid series of European economic data.
In the event of more comprehensive stimulus than expected from the BoJ on Friday, the yen will likely be pressured to retreat sharply, pushing EUR/JPY to rise and extend its rebound from recent multi-year lows. In the opposite event of a substantially lighter stimulus package that disappoints Abe and other Japanese government officials, the yen could resume its longer-term strengthening, potentially pressuring EUR/JPY to continue its downtrend of the past year.
This EUR/JPY downtrend is clearly framed by two key trend lines that have shown an acceleration of the bearish trend this year. Most recently, the currency pair established a post-Brexit multi-year low around 109.50 in late June. This was followed by a rebound within the past three weeks that boosted EUR/JPY up to a key 61.8% Fibonacci retracement level before falling back.
Currently, in the immediate run-up to the BoJ policy statement, the currency pair is bumped up against its 50-day moving average to the upside. To the downside is the major 115.00 support level. Depending on the outcome of the policy statement, any surprise could likely lead to a breakout price move. With less-than-expected stimulus, EUR/JPY could break down below 115.00, which could put it on track to target downside support around 111.00, followed by a potential resumption of the entrenched bearish trend. With more-than-expected stimulus, EUR/JPY could rise above its 50-day moving average, in which case, the next major resistance targets are around the 119.00 level, followed further to the upside by the noted accelerated downtrend line.
By ending the regular meeting lasted two days 26-27th of July, almost all Fed officials agreed to postpone raising interest rates to keep track of economic indicators before deciding on policy adjustments in the next session. Up to 9/10 of votes cast in favor of unchanged interest rates at 0.25%-0.5%.
Some bright views in the FOMC statement issued after the meeting, are that the labor market has returned to strong growth, consumer increases sharply. The agency claims that short-term risks threatening the US economic outlook have disappeared. In the opposite direction, a statement said inflation is still low and this situation may continue for the short term. However, inflation will rise again when the energy prices recover and the labor market continues to improve.
Dollar Index, measuring the strength of Dollar against a basket of currencies rose 0.4% immediately after the Fed announced the results of the meeting. However, the greenback was bearish back against most of the major currencies as investors disappointed with the absence of specific signals on raising interest rates, especially plan of adjusting interest rates at the next meeting in September.
In spite of not raising interest rates in this meeting, however, Fed's assessment on the US economic situation has increased expectations of interest rate hikes in the coming months. Wall Street investors bet 20.9% chance of rate hike in September and 49.5% in December. US dollar is expected to continue to show strength in the future.
The yen yesterday witnessed volatility with the soared USD / JPY after Reuters reported Japanese government is expected to issue 50-year bonds to support big fiscal stimulus programs. However, the yen then rebounded when the Japanese Finance Ministry denies rumors related to 50-year bonds.
After the Fed meeting, the market's attention focused on the results of the meeting of the Central Bank of Japan (BOJ) to be announced tomorrow. This session will be closely monitored in the context of that the Japanese government determines to implement a huge stimulus package to revive the economy of the country. Analysts predict BOJ will ease monetary policy further and most likely the agency will increase the size of the bond purchase program from 80 trillion yen per year to 100 trillion yen while reducing interest rates on deposits from minus 0.1% to minus 0.3%.
The continuous price rise of the dollar has temporarily halted when greenback dropped again against most of the major currencies during yesterday's trading session due to taking profit by investors after US dollar index measuring the strength of the dollar against a basket of currencies, goes to its highest level for 4 months. Besides, the carefulness before Fed meeting result made investors reduce bets on the greenback.
The result of periodic policy meetings of Fed will be announced today, and the agency is expected to keep interest rates at this meeting. However, investors will closely watch policy statements issued after the meeting of Fed in order to know about the current situation and prospects of the US economy. The recently released data show retail sales, consumer prices, and industrial production in the US in June rose further. Meanwhile, reports of non-agricultural jobs in June announced earlier this month, also stressed the labor market is recovering strongly and allay concerns about the deceleration of economic growth. The positive data in the US economy prompted investors to increase expectations that Fed will raise interest rates before the end of this year.
According to observers, after the relatively peaceful attitude in June, this announcement of Fed may indicate a more optimistic tone before the improvement of recent economic data. However, do not exclude the possibility that the Fed expressed a cautious view when the agency is awaiting the evaluation of the impact of the UK to leave the European Union for the outlook of the US economy before making any orientation interest rate policy in the coming period.
The yen this morning decreased sharply after Reuters reported the Japanese government is expected to issue 50-year-bonds to support the big fiscal stimulus program which will be launched. However, the currency subsequently bounced back as Japanese Finance Ministry denies rumors related to 50-year bonds. Also this morning, Prime Minister Shinzo Abe said the fiscal stimulus package in this time values over 28 trillion yen (265 billion dollars) and details will be announced next week. Information about the strong package of government will be announced before the meeting shelf of the Central Bank of Japan (BOJ) held on Friday, 29th of July. Analysts predict the BOJ will ease monetary policy further and most likely the agency will increase the size of the bond purchase program from 80 trillion yen per year to 100 thousand billion yen while reducing interest rates on deposits from minus 0.1% to minus 0.3%.
On Tuesday, European shares demonstrated mixed performance as market participants were still cautious ahead of this week’s policy gatherings by the ECB and BOJ.
The EURO STOXX 50 managed to gain 0.07%, French CAC 40 sank 0.21%, while Germans DAX 30 earned up to 0.06%.
Positive American data issued that week kept backing hopes for a rate lift by the US major bank in the nearer future.
While the vast majority of market participants expect the Fed to leave its monetary policy intact this week, it could provide hints on the timing of future rate lifts.
Apart from that, market participants were also looking ahead to Friday’s policy statement by the Bank of Japan, amid surging hopes for the announcement of extra stimulus measures.
Financial shares were mostly lower, as French lenders Societe Generale along with BNP Paribas headed south 0.73% and 0.66%, respectively, while German Deutsche Bank as well as Commerzbank went down 2.65% and 3.92%.
As for peripheral lenders, Italian Intesa Sanpaolo as well as Unicredit dipped 0.65% and 0.96% respectively. Meanwhile, Spanish banks Banco Santander along with BBVA dropped 0.21% and 0.39% respectively.