Policy focus on RBA, BOJ’s Ueda By Reuters

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

Asian shares may be on a cautious note on Tuesday after a fairly lackluster US session the day before and as investors brace for an interest rate decision in Australia and remarks from Bank of Japan Governor Kazuo Ueda.

That said, weak gains on Wall Street held on 0.3 percent from last week’s record high and pushed the Dow to a new peak of 42,190. The feel-good factor from last week’s Fed move hasn’t worn off yet.

Indeed, the bullish case for risky assets may have received a boost on Monday from Chicago Fed President Austan Goolsbee, who said the Fed’s policy rate was still “hundreds” of basis points above neutral and that there are “many cuts” to come over the next year.

This follows surprisingly dovish comments on Friday from Fed Governor Christopher Waller, who said inflation is easing much faster than previously thought and that August PCE inflation could be very low.

But there is often a fine line between the deep rate cuts that encourage investors to take on risk and concerns about why policy is being eased so quickly. This is why all data on economic activity and the labor market between now and the next Fed meeting will be scrutinized so closely.

The Reserve Bank of Australia is the next major central bank to provide the latest policy decision and guidance. With inflation above the central bank’s 2%-3% target range and the labor market looking strong, there is virtually no chance of an interest rate cut.

All 43 economists polled by Reuters expect the RBA to keep its cash rate on hold at 4.35% on Tuesday, with 40 of them saying there will be no rate move this year.

swap markets attach a roughly two-in-three chance of a 25-basis-point interest rate cut by the end of this year and imply a total easing of 100 bps next year — significantly less than all but the G10 central banks Banks of Japan and the Swiss National Bank.

The BOJ is the only major central bank to raise interest rates, and investors will look to a speech by Governor Kazuo Ueda on Tuesday for clues about the pace and extent of the tightening. The BOJ left rates unchanged on Friday and signaled it was in no rush to raise them again.

Meanwhile, the People’s Bank of China injected 14-day liquidity into the financial system on Monday for the first time in months and at a lower rate than before. But investors will need plenty of convincing that Beijing’s stimulus efforts will be enough to fight deflation and revive growth.

Here are the key developments that could provide more direction for Asian markets on Tuesday:

– Australia’s interest rate decision

– BOJ Governor Kazuo Ueda speaks

– Flash PMI from Japan (September)