- Bank of Japan keeps policy measures unchanged, while data show that GDP unexpectedly contracted in Q4.
- Today focus is on preliminary euro-area Q4 GDP figures and Norges Bank's Olsens annual address.
The Bank of Japan (BoJ) this morning kept its policy measures unchanged as widely expected.
The decision came after disappointing Q4 GDP figures were released earlier in the session, revealing that the Japanese economy contracted an annualised 0.4% rather than posting growth of the 0.4% analysts had been looking for. Overnight, likely candidate to become the next BoJ governor, former BoJ official Iwata, said the Japanese inflation target would not be attainable without a JPY correction and that USD/JPY in the 90-100 range would mark a return to equilibrium.
Japanese monetary policy has become the centre of attention leading up to the G20 meeting that starts in Moscow today. Earlier in the week conflicting G7 communication on the group’s stand on recent FX moves fuelled yen volatility and talks of a global currency war continue. Yesterday, Bank of England governor King noted that a weaker sterling is a ‘necessary condition for rebalancing’ the UK economy. Later in the day ECB’s Nowotny in a newspaper interview repeated Draghi’s dismissal of a currency war, yet noting that the ECB is watching the effects of a stronger EUR on the inflation outlook. Separately, Canadian finance minister Flaherty yesterday stressed the G7 statement was a consensus one, not meant to single out JPY. Watch out for news on G20 discussions when gathering starts today.
Separately, the US Treasury was out saying it does not support the plan by 11 EU countries to impose a new (Tobin) tax on financial transactions; US business and banks have also raised the flag on this issue, fearing its likely anti-avoidance measures would affect trading outside the participating countries. The European Commission is later today set to present a plan for the tax, which could bring in an estimated EUR30- 35bn per year.
US equity markets were somewhat mixed last night; stocks were on the whole held back by US retail sales coming in below expectations yesterday, albeit positive revisions and details being better than headline numbers should be noted. Asian markets have been more upbeat as the dismal Japanese GDP report spurred hopes the BoJ will continue its recent aggressiveness. US Treasuries were sold off in reduced flight-to-quality session, which saw yields up 1-4bp with yield gains centred in the long end of the curve. In FX markets, most G10 currencies are lower against USD this morning with NZD the exception held up by a strong PMI reading and decent consumer confidence figures.
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