Weak Yen Might Become Ever Bigger Factor in BoJ’s Assessment

Markets

US markets were closed for Thanksgiving yesterday and second tier EMU eco data failed to impress. The result was a dull, low volume, trading session. Minutes of the previous ECB meeting confirmed the central bank’s current comfortable position with the bar being very high to change that. EC November economic confidence data printed near consensus. Russian president Putin signaled willingness to negotiate a peace deal by saying that US President Trump’s proposals for end the war could be the basis for future agreements. No final version exists yet with US official heading to Moscow next week for further discussions. He was happy to learn that the US took into account Russia’s position as discussed when the two presidents met in Alaska. European stock markets closed almost unchanged after a day of treading water near opening levels. German bond yields added 1 bp across the curve while EUR/USD remained stuck at 1.16. EUR/GBP also went nowhere at 0.8758. The “relief” rally following UK Chancellor Reeves’ Autumn budget proved short-lived. We stressed before that it might be a battle won by the UK government, but the fight ain’t over.

US markets close early today with traded volumes traditionally lower the (Black) Friday after Thanksgiving. Eco data are confined to Europe with national inflation readings in Spain, France, Italy and Germany. Yesterday’s numbers released in Belgium showed a significant acceleration, but that doesn’t necessarily mean that we’ll get the same today as national policies obviously can play an important role. Taken into account the firm ECB stance, EMU eco data generally lost market-moving potential. It leaves general risk sentiment as today’s main global market driver. Stock markets crawled back this week, avoiding a sell-on-upticks pattern. We’ll see how much dash is left going into the weekend.

News & Views

Japanese data published this morning at least confirm that conditions are falling into place for the Bank of Japan to make a next step in the process of policy normalization in the near future. November Tokyo CPI inflation, seen as pointer for national data to be published next month, remained well above the BoJ’s 2% inflation target. Headline inflation eased marginally from 2.8% to 2.7%. Core measures (ex fresh food & ex fresh food and energy) were both unchanged at 2.8%. Food price inflation slowed to 0.3% M/M and 5.5% Y/Y (from 5.8%). Utility prices again rose a solid 4.1% M/M (2.4% Y/Y). Services prices inflation eased slightly to 1.5% Y/Y from 1.6%. Price rises for goods were still a strong 4% Y/Y. In this respect, the weak of level of the yen might become an ever bigger factor in the BoJ’s assessment. Aside from the price data, activity indictors also showed resilience with both October production growth (1.4% M/M and 1.5% Y/Y) and retail sales (1.6% M/M) substantially beating expectations. The unemployment rate remained unchanged at 2.6%. The next BoJ policy decision is scheduled for December 19. The market currently discounts a probability of a rate hike of about 60%. The yen whipsawed but holds basically unchanged near USD/JPY 156.35.

Consumer confidence in New-Zealand as measured by the ANZ-Roy Morgan survey improved substantially in November, rising from 92.4 to 98.4 and reaching the best level since June. Consumers, amongst others, turned more positive on the economy, both for the next year and further out. Also ANZ business confidence jumped sharply in November from 58.1 to 67.1. This is the best level since March 2014. The release of these solid confidence data come after the RBNZ earlier this week cut the policy rate by 25 bps to 2.25%, but indicated that the bar for further easing is high as the current level of the policy rate is low enough to support activity going forward. Even so, after a sharp rebound after the RBNZ decision, the kiwi dollar this morning eases marginally to NZD/USD 0.5715. It traded below 0.56 at the start of the week.