BOJ puts yen in focus by Reuters

A look at the day ahead in European and global markets from Wayne Cole.

It was left to the Bank of Japan (BOJ) to end the “central banker’s week” without doing anything on rates, although it brought the yen into focus.

BOJ statements can be rather Delphic, so their latest was mercifully short at five paragraphs of plain prose, including eight uses of the words “moderate” or “moderate” to describe the economic context.

A notable passage was at the end, where he singled out the financial and currency markets in a clear reference to the recent swings in stocks and the yen.

It noted that movements in the yen have become more likely to affect prices, implying a weaker currency would add more to inflation than in the past, and perhaps this may no longer be welcome.

That was enough to push the yen a bit higher at 142.30 per dollar, but it’s still down big for the week. is up 1.7% for the week and up 2.6%, so maybe carry trades are back on the menu.

Markets will have to wait until BOJ Governor Ueda’s presser at 15:30 (0630 GMT) to learn more about the outlook for tightening, especially if the October meeting is live for a hike.

Markets only have 3 basis points of price tightening for October, although there are almost six weeks to go, so there is plenty of time for things to change. Most analysts polled by Reuters favor a December hike of 25 basis points, although the market is still only 7bp in price.

It was largely flat and up 1.9% at the time of writing, while much of Asia followed Wall Street’s overnight rally, still basking in the huge rate cut Fed.

Earlier, China’s central bank surprised markets by not cutting its key rates, then had to intervene in currency markets to prevent the yuan from rising too quickly after 16-month highs.

Optimists argued the delay was so the rate cuts could be included in a large stimulus package, but such a package has been talked about since the pandemic and none has materialized. Others suspect that the PBOC is more concerned about falling bond yields and banks’ profit margins and will need to lower reserve requirements first.

And one last word about the yield curve. For two years, the inverted curve is assumed to have signaled a certain recession, even as US growth bucked the trend.

Now it’s the distortion of the curve that economic orthodoxy says a recession is inevitable, even as consumers continue to spend, weekly jobless claims hit their lowest level since May, and the fairly reliable Atlanta GDPNow measure points to 2.9% growth in the third trimester.

You can’t have all the modes and maybe the curve isn’t infallible.

Key developments that could influence markets on Friday:

– August UK Retail Sales, Canadian Retail Sales, German PPI, EU Consumer Confidence

– Speech by Catherine Mann, external member of the BoE MPC

– Conversation between ECB President Christine Lagarde and IMF Managing Director Kristalina Georgieva

– Federal Reserve Bank of Philadelphia President Patrick Harker speaks

– Bank of Canada Governor Tiff Macklem gives a speech

(By Wayne Cole; Editing by Edmund Klamann)