Marketmind: BOJ struggles with a deflationary state of mind
Reuters
Published Jan 23, 2024 05:33
A look at the day ahead in European and global markets from Wayne Cole
That felt like a long wait for a two-page policy statement, and in the end the Bank of Japan (BOJ) hardly altered anything. Policy was left super-easy and the bank spoke of its struggle to break the deflationary "mindset" of the Japanese people.
Rates stay at minus 0.1% and yield curve control remains the same, with the usual promise to be "patient" until core inflation is above 2% in a stable manner.
With that in mind, the median board member forecast for consumer prices (CPI) ex-fresh food in fiscal year 2024 did drop to 2.4%, from 2.8% last October.
The forecast then falls to 1.8% for fiscal 2025, while CPI ex-fresh food and energy is put at 1.9%. Neither would seem to be stably above 2%, begging the question of why exactly the BOJ should tighten policy as so many Western analysts expect.
A notable paragraph in the BOJ summary observed that years of deflation meant "the behaviour and mindset based on the assumption that wages and prices will not increase easily have taken hold in society".
"Considering this, it is important to closely monitor whether a virtuous cycle between wages and prices will intensify."
Governor Kazuo Ueda will have a chance to expand on his outlook in a media conference at 0630 GMT, and typically he tends to favour stability over change.
The next policy meeting isn't until March 19, when this year's round of annual wage talks will still be under way, so any move on rates will likely not come until the April 26 meeting, at the earliest.
That gives investors another three months to indulge in carry trades and stay short of the yen, while the Nikkei celebrated with another high before running into profit-taking.
Tokyo markets have also benefited from offshore funds fleeing China and signs that Washington's restrictions on tech sales to Beijing are leading to more business investment in Japan - also known as friendshoring.
The pressure on Chinese stocks has already seen Beijing use public funds to shore up the market, although that did not stop the Shanghai Composite from suffering its biggest one-day drop on Monday since April 2022.
Sources also told Reuters that state-owned banks had moved to support the yuan, while the central bank set another firm fix for the currency earlier this session.
The latest twist came from a Bloomberg News story that authorities were considering a package of measures to stabilise the market.
This would apparently involve using about 2 trillion yuan($278.53 billion), mainly from the offshore accounts of Chinese state-owned enterprises, to buy shares onshore through the Hong Kong exchange link.
That triggered a rally in the Hang Seng but Shanghai stocks were still in the red, suggesting some scepticism in the market about the package.
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Turning to Wall Street, Netflix (NASDAQ:NFLX) reports earnings after the bell and expectations are generally upbeat, in part due to its crackdown on password-sharing and the start of paid sharing in countries that account for more than 80% of revenue.
Also due is General Electric (NYSE:GE), with JPMorgan (NYSE:JPM) looking for earnings to beat the Street and a constructive outlook for the year ahead, with investors looking for aero margins above 19%.
Key developments that could influence markets on Tuesday:
- EU consumer confidence for Jan
- Philly Fed Non-Mfg Activity, Richmond Fed Mfg Index and Business Conditions
- Other earnings include P&G, Verizon (NYSE:VZ), Lockheed Martin (NYSE:LMT), Halliburton (NYSE:HAL), J&J (NYSE:JNJ), 3M (NYSE:MMM) Corp
(By Wayne Cole; Editing by Edmund Klamann)
Written By: Reuters
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