Japanese Nikkei rebounded strongly today and is up over 300 pts at the time of writing while the Japanese yen is staying in tight range. Markets are awaiting prime minister Shinzo Abe's press conference. As Japan unexpectedly entered into recession, as yesterday's GDP report showed, Abe is expected to call an early election to secure support for delaying the next sales tax hike scheduled for October 2015. It's speculated that the delay could be up to 18 months. Abe will meet with his Council on Economic and Fiscal Policy first and announce the decision later in Japan evening. Yen extended recent down trend last week on such speculations as delay of tax hike would worsen the fiscal outlook of the country.
RBA minutes reiterated that "the most prudent course was likely to be a period of stability in interest rates." Regarding exchange rate, RBA reiterated that "the Australian dollar remained above most estimates of its fundamental value." It also noted that growth is expected to be "below trend over 2014-2015" before gradually picking up. The labor market conditions remained "subdued" and "it was likely to be some time before unemployment declined consistently". Meanwhile, RBA said that "low interest rates and ongoing population growth were expected to continue to support growth in both housing activity and the established housing market." And, that should give some support to household consumptions. On the other hand, household spending would be weighed down by the negative impact from low income growth.
ECB president Mario Draghi warned that "we need to remain alert to possible downside risks to our outlook for inflation, in particular against the background of a weakening growth momentum and continued subdued monetary and credit dynamics." And, "if necessary to further address risks of too prolonged a period of low inflation, the governing council is unanimous in its commitment to using additional unconventional instruments within its mandate." Also, he said that the unconventional measures entailed purchase of "a variety of assets" including "sovereign bonds". Executive board member Yves Mersch said that such measures could include sovereign debt, gold, exchange-traded funds, and even real estate. But he also warned that "unconventional monetary policy measures can have also unintended side effects in the medium and long term if we use them too aggressively or too extensively." Thus, Mersch emphasized that "every possible new measure must therefore be thoroughly screened for effectiveness, efficiency and and conformity with out mandate."
In US, a research by San Francisco Fed noted that inflation could remain below the 2% target through the end of 2016. The reported noted that "persistent effects from the financial crisis are the main reason inflation is expected to remain low for so long." And, "the risk of high inflation in the next one to two years remains very low by historical standards." And, based on Fed's model, "there is little evidence that monetary policy constitutes a major source of inflation risk." Fed Governor Jerome Powell said inflation "is likely to remain weak for some time" but he's "cautiously optimistic" on the economic outlook. And, "if we stay on the current path it would make sense to raise rates some time during 2015, perhaps in the middle of 2015."
Looking ahead, UK inflation data and German ZEW will be the main focus in European session. US will release PPI and NAHB housing index.