By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets from financial markets columnist Jamie McGeever.
Never underestimate the Bank of Japan’s ability to move markets.
As the dollar’s rally appears to be accelerating and concerns over Asian currency weakness deepen, BOJ Governor Kazuo Ueda hinted at a possible shift away from negative interest rate policy, perhaps before the year ends.
Ueda’s comments ignited Japanese government bond and currency markets – the yen posted its biggest rise in two months and the 10-year JGB yield rose to its highest level in almost 10 years, the first since January 2014. Was 0.70%.
Analysts at Barclays expect BOJ officials to further clarify their thinking at next week’s policy meeting, while economists at Deutsche Bank have radically changed their BOJ forecasts.
He now expects the central bank’s ‘yield curve control’ policy to end in October rather than April 2024, and the negative interest rate policy to end in January 2024 rather than December 2024.
The prospect of a fundamentally different – that is, far more stringent – monetary policy stance in the world’s third-largest economy is far greater in Japan’s domestic markets, especially the foreign exchange.
Investors bearish on Asian currencies, partly on the idea that continued weakness in the Chinese yuan will trigger a domino effect of competitive FX depreciation across the continent, may have to think twice.
Most Asian currencies rose against the dollar on Monday, posting their biggest one-day decline in two months. The main exceptions are the Indonesian rupiah and the Philippine peso, which were little changed on the day.
Of course, the BOJ can stick to the cautious long game it has been playing for years, and the frenzy of revaluation of Japanese assets and Asian currencies will soon end. But for now, the two-way risk appetite is very high in the market and investors are taking Ueda’s words at face value.
Apart from the Japanese policy drama, investors will also have the latest Indian inflation and industrial production data, and Australian business and consumer sentiment data on Tuesday.
Annual consumer price inflation in India is expected to ease to 7.00% in August from a 15-month high of 7.44% in July. But it will still remain above the upper end of the Reserve Bank of India’s 2% to 6% target for the second consecutive month.
The rupee has been stable in recent sessions, but closed at a record low against the dollar last week. The currency is finding little support from an interest rate perspective – economists currently expect the RBI to keep rates in place and then begin easing policy in the second quarter of next year.
Here are the key developments that could provide greater direction to the market on Tuesday:
– India Inflation (August)
– Australia Consumer Sentiment (September)
– Bank of Korea Monetary Policy Meeting Minutes
(By Jamie McGeever; Editing by Josie Cao)