Fed taper and BOJ revision of economic outlook

In the past few weeks, the financial markets have experienced geopolitical tensions, volatile economic data, and uncertain central banks’ outlooks. The most important fundamental that investors were awaiting was the Jackson Hole symposium to gain an insight into the Fed’s outlook towards tapering. Many Fed officials have expressed their views in favor of tapering as early as 2021 with potential interest rates increase in early 2022. However, Fed Chair Powell stated on multiple occasions that a precondition for tapering is substantial progress in price stability and the labor market -- the dual mandate of the central bank. At the Jackson Hole symposium, Powell confirmed that the Fed could begin tapering; however, that is not a signal of a potential increase in interest rates in the near future as there is more progress to be made to achieve maximum employment. The employment data in June and July projected strong growth in the labor market, but the recent increase in cases related to the delta variant may increase uncertainty in the months ahead. As we approach Friday, the sentiment remains that there is a very low probability that NFP economic data will clarify this uncertainty as the fear surrounding the delta variant takes its toll on consumer confidence. 

As the Federal Reserve prepares to take its initial steps towards a more contractionary policy compared to the current extended accommodative stance, the Bank of Japan’s Deputy Governor sees a delay in Japan’s economic recovery and discusses potential revision of the economic growth outlook for the nation. The COVID infection cases are reaching record levels in Japan which have forced the extension of a state of emergency across numerous regions in the country. Thus, BOJ Deputy Governor expressed his support for continued monetary easing and pandemic support measures. The investors and economists will be watching closely for any updates as we approach the central bank’s two-day meeting that is set to conclude on September 22, 2021. From a technical perspective, many pairs and commodities currently are at or approaching key levels as investors watch the macro fundamentals closely. Thus, the coming days and weeks will be essential from a fundamental perspective.