“What if the Bank of Japan blinks? »

Until last week, the yen trade reflected an expectation that while the US Federal Reserve might be forced to tighten monetary policy further due to high inflation, the policy meeting was unlikely to from the Bank of Japan rocks the boat with important verbal or practical comments. posture change. This helped push the Japanese currency to its weakest point against the dollar in five years.

However, the last few days have shaken that certainty. JPMorgan analysts framed a Friday note on the yen with the question “what if the BoJ blinks?” : Trading in the yen, which rose sharply on Thursday and Friday, is an expression of the same speculation that this week’s meeting could still hint at a critical change in thinking or a potential relaxation of the control regime. BoJ yield curve.

Underlying inflation in Japan is on the rise, with a significant jump in wholesale prices in December, the latest signal that even Japan is not immune to the global trend.

Morgan Stanley analysts now assume that the BoJ’s existing outlook, which deems the risk to prices to be “biased on the downside”, could now be revised to suggest that the risks are “balanced”.

Investors should still expect, said Morgan Stanley, BoJ Governor Haruhiko Kuroda, to stress that it is still far from reaching the 2% inflation target in a sustainable way and that the accommodative position must be maintained for the time being.

Other analysts point to the risks of a deterioration in Japan’s economy as the country braces for the current wave of Omicron infections to escalate among a population where almost none have received their third booster injection.

Staff absences and the likely imposition of restrictions on restaurants, bars and other businesses could limit overall economic growth in the current quarter, Capital Economics analysts said. Leo Lewis

Will UK inflation data prompt another rate hike?

Data released this week will offer the latest official signals on the strength of the UK labor market – and the pace of consumer price inflation – ahead of the Bank of England’s monetary policy announcement on February 3. The numbers will be evaluated by the committee members. when they decide to raise interest rates again after a rise in December to 0.25%.

Sandra Horsfield, an economist at Investec, expects the labor market to remain tight and inflation to show only a marginal decline to 5% a year in December, after hitting a peak of 5.1% on last month. As a result, Horsfield expects a further rate hike to 0.5% at the next MPC meeting.

Food price inflation is expected to have continued to rise in December, due to higher commodity prices during this period. However, price inflation for clothes and shoes has probably eased, mainly due to their higher than usual prices in December last year.

After inflation readings were largely flat in December and January, Samuel Tombs, an economist at Pantheon Macroeconomics, expects headline inflation in the UK to peak at 6% in April when energy regulator Ofgem raises its default energy price cap. That would be the highest rate in 30 years and three times the BoE’s 2% target.

However, Tombs expects the overall rate to decline to around 4% by the end of the year as supply chain disruptions ease and demand shifts back from goods to services. As a result, “the MPC doesn’t need to panic,” said Tombs, who expects two rate hikes of 0.25 percentage points this year, rather than the four more widely anticipated by investors. Valentina Romei

Will ECB minutes shed light on stimulus thinking?

The European Central Bank will release the minutes of its latest policy meeting on Thursday, giving insight into the evolving debate over the future path of inflation and whether its stimulus policies should be withdrawn more quickly.

Christine Lagarde, President of the ECB, announced after last month’s meeting that her Governing Council had agreed on a “gradual reduction in the pace of asset purchases” in 2022 while judging that “monetary accommodation is still necessary” for inflation to reach its climax. medium-term target.

The ECB’s position contrasts with that of other major central banks, such as the US Federal Reserve and the Bank of England, which are preparing to stop buying bonds altogether and start raising rates in response to the inflation, which has reached multi-decade highs.

Since the ECB meeting, euro zone inflation hit a new high of 5% in December, prompting some council members to warn that if prices continue to rise faster than its target of 2 % longer than expected will require a more drastic policy change.

Isabel Schnabel, a member of the ECB’s executive board, voiced those fears a week ago, saying that the planned transition from fossil fuels to a greener, low-carbon economy “presents measurable upside risks to our projection of benchmark for medium-term inflation”.

Last month’s move was opposed by some of the board’s more “hawkish” members, such as Jens Weidmann, the now deceased head of Germany’s central bank, who argued that the ECB s committed too long to sustaining its stimulus given the upside risks to inflation.

The minutes will help to better understand how widely this point of view was shared. “At the end of the day, a number of board members seem ready to change the course of the ECB, but for now they want to wait and see how the pandemic, inflation and the economy develop,” Michael said. Schubert, economist at Commerzbank. Martin Arnold

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