Bank of Japan on hold for the near future
|Market movers today
We have a couple of tier-two data on the agenda today. Most interesting will be the UK labour market report for November as it will provide more input for the possibility of policy easing later this month. We look for an unchanged unemployment rate of 3.8%, while we expect wage growth (excl. bonuses) to moderate to 3.4% y/y from 3.5% y/y in October. We will also get more news on the pace of the global recovery with the release of flash PMIs for the euro area, the US, Japan and the UK (all Friday).
The German ZEW expectations index has increased a lot in recent months and is one of the indicators that signals a turn in the cycle. We expect the index for January to continue this picture. Otherwise global markets await the ECB meeting later this week.
Selected market news
As expected, Bank of Japan (BoJ) kept its QQE with yield curve control and its forward guidance unchanged at a meeting ending this morning. USD/JPY is largely unchanged on the news. We also got new projections for growth and inflation and as expected the growth forecast was revised up as a consequence of the government’s big spending package. The BoJ now expects 0.9% GDP-growth in FY2020 versus 0.7% back in October and it still sees the economy on ‘a moderate expanding trend’. The forecast for inflation was revised slightly down. Even in FY2021, the BoJ expects only 1.4% inflation. Q4 data has been quite discouraging and we expect BoJ to remain on hold for the coming year as well. Several one-offs, such as the VAT-hike and typhoon Hagibis, have weighed on activity in Japan recently. Action has been taken with the government's big spending package from December and as long as USD/JPY remains off the 100-level, we expect the BoJ to conserve the small amount of dry powder it has left.
French President Emanuel Macron tweeted late on Monday that France and the US have agreed on a ‘truce’ on tariffs until the end of this year, to which US president Trump tweeted: ‘excellent’. The two countries have been on collision course ever since France last year pushed ahead with a digital tax levied upon especially large US tech companies, after which the US threatened to retaliate by imposing additional tariffs targeting especially French agricultural produce.
The impeachment inquiry against US president Donald Trump is set to start in earnest on Tuesday afternoon, when the sworn-in senators of the senate and the seven house democrats that will lead the case against the US president will meet at 1pm ET, as they will do six days a week (Monday through Saturday) – firstly in order to establish the rules of the inquiry. The length of the process is for now unknown, but the senate majority leader Mitch McConnell yesterday put forward the proposed rules for the upcoming trial, which are expected to receive approval from the majority of republican senators. The proposal includes that the defence and the prosecutors each will receive 24 hours within a two-day period to lay out their case. Also whether the house democrats will be able to introduce fresh evidence or witnesses not included in the initial house inquiry will be decided by a simple majority senate vote.
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