US equities tumbled sharply while dollar extended recent rise overnight. DJIA dropped -190.48 pts, or -1.04%, to close at 10841.54 after breaching 18000 handle briefly. S&P 500 lost -21.86 pts, or -1.03%, to close at 2104.20. Weak sentiment carries on in Asian session. Dollar index rebounded to as high as 97.38 so far and is heading for a test on recent high at 100.39. Markets are taking comments from Fed chair Janet Yellen serious, where she showed the determination to raise interest rate this year. Fed Vice-Chair Stanley Fischer stated in a event in Israel that "the tightening of U.S. policy will begin only when the US expansion has advanced far enough--when we have seen further improvement in the labor market and when we are reasonably confident that the inflation rate will rise to our 2% goal". He added that "if foreign growth is weaker than anticipated, the consequences for the US economy could lead the Fed to remove accommodation more slowly than otherwise".
Released today, BoJ minutes released for the April meeting confirmed that policymakers' concerns that risks to inflation are skewed to the down side due to uncertainty about the long-term inflation expectations, consumer spending, and the output gap. As mentioned in the minutes, "with regard to the baseline scenario for prices, many members expressed the view that there was considerable uncertainty, mainly in developments in medium- to long-term inflation expectations, and risks on the price front were skewed to the downside". Indeed, in the press conference following the April meeting, Governor Kuroda indicated that "timing for achieving 2 percent inflation has been delayed somewhat... But trend inflation is improving steadily and is expected to continue improving. As such, I don't think there's a need to ease policy further now".
BoC rate decision is the main focus today and is expected to keep rate unchanged at 0.75%. Opinions on BoC's next move are divided. It's generally expected that BoC would stand pat till mid next year. Meanwhile, there are minorities of analysts expecting a hike and a cut during the period. The key factors would be the impact on the domestic economy from the sharp fall in oil price, which is still unknown. Also, the resilience on US economy to Fed's rate hike would play a role. For now, we're not expecting any new information from today's BoC statement.