Japan: BoJ Governor Kuroda to speak in Zurich
Kuroda, the Bank of Japan Governor, is set to speak today in Zurich. Each one of its intervention are well regarded by financial markets. Indeed, it is still very interesting to know how he will address the lack of inflation in one decade. The truth is that strategy remains absolutely the same and can be sum-up in two words: all-in.
On the data side, the recent the PPI – Producer Price Index – for October has increased 3.4% y/y from 3.1% and September data has been revised up to 3.1%. GDP for Q3 is expected tomorrow and is nonetheless expected lower than Q2 04 q/q versus 0.6 q/q.
We consider that the due to the amount of money injected in the market, this should translate at some point in inflation. And this inflation is highly needed to kill the debt that was first needed to create… inflation. Then it is very easy to imagine than Japanese central bankers hope that inflation will soon run and kill the massive debt which currently represents officially 250% of the GDP.
Inflation data such as the National CPI is on the rise for last data available, in September with 0.7% y/y. Tokyo CPI excluding fresh foods in also on a growing momentum. And retail sales increase as well. In other words the demand for good increase. We may be at the inflection point for Japan. Only time will tell. But from a virtuous circle to a vicious circle, the border is very thin.
Bankfurt summit to boost USD
Tomorrow will see central banking’s heavy hitters up to bat in Frankfurt. Janet Yellen of the US Federal Reserve, Mario Draghi of the European Central Bank, Mark Carney of the Bank of England and Haruhiko Kuroda of the Bank of Japan are scheduled to address ‘communication challenges’ at a conference held at the ECB’s headquarters. We think the upshot will be a bullish outlook for the USD, based on policy divergence and yield steepening. A low-yielding G10 and high-beta emerging market currencies look especially exposed.
Central bank guidance is as clear as mud. Economic outlook remains positive: favourable macro conditions with subdued inflation suggest that tightening money won’t happen yet except in the USA, which likely has an increase coming in December. Yellen and her successor Jerome Powell must remain ahead of the inflation curve. Meanwhile, headlines over a struggling US tax plan will likely weigh on stocks and negatively affect sentiment on the dollar.
