- Bernanke does not see imminent termination of Fed's bond purchases.
- JPY stronger on the back of comments from Japan's Minister of Economics suggesting negative risks from excessive depreciation of JPY.
- Main focus today retail sales and Empire manufacturing PMI in the US.
Federal Reserve Chairman Ben Bernanke in a speech yesterday did not suggest that a termination of the Fed’s treasury and mortgage bond purchases was imminent
. Bernanke repeated his earlier message that the labour market needed to improve markedly before the bond purchases will be terminated. He also said that the effectiveness of bond purchases to aid a recovery will have to be evaluated but it appears that he so far believes bond purchases have been an effective tool.
Non-voting FOMC member John Williamson from the San Francisco Fed in a speech yesterday was more specific about the Fed’s bond purchases and said that he expected the bond purchases to be continued "well into the second half of 2013." Williamson is generally regarded as a dove and it is interesting that he does appear to rule out bond purchases being continued in 2014.
Atlanta Fed’s Dennis Lockhart in comments yesterday was sceptical about the Fed’s continued expansion of its balance sheet. This is not a surprise, as Lockhart is regarded as a hawk and he is also currently a non-voting member of FOMC.
There was no major market reaction to Bernanke’s comments. Sentiment on the US stock market was slightly negative as reports that Apple had cancelled substantial component orders on the back of disappointing iPhone5 sales weighed on the overall market. S&P 500 closed yesterday’s session down 0.1%. Asian stock markets are mixed with Nikkei up 0.7% and Hong Kong’s Hang Seng down 0.7%.
In the FX market JPY has strengthened overnight on the back of comments from Japan’s Minister of Economics Akira Amari suggesting that the Japanese economy could also face negative risks through higher import prices from an excessive JPY depreciation.
However, Bank of Japan governor Massaki Shirakawa in dovish comments appears to be laying the ground for another round of aggressive monetary easing in connection with the next meeting on 21-22 January. Shirakawa said that the Japanese economy remained weak and BoJ will pursue "powerful monetary easing."
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