Summary
The Bank of Japan's recent switch to an interest rate target for the 10-year government bond was presented by the bank as a minor policy adjustment. It is nothing of the kind. It is an admission of failure. Haruhiko Kuroda the BOJ Governor promised more than two years ago that the bank would not relent until Japanese inflation reached 2 percent. What the bank could not accomplish by buying almost half the JGB market will not be manifest by keeping the middle range of the interest rate yield curve at zero. The policy is designed to help Japanese banks improve profitability, severely damaged by the flattened yield curve, nothing more.
The ECB has been equally unsuccessful at fostering inflation, though its mandate restrictions have prevented Mario Draghi from scooping up anywhere near the percentage of ECB sovereign debt as its Asian counterpart. Here too bank spokesman do not admit the policy failure but continue to promote the possibility of further monetary accommodation.
In the U.S. the Federal Reserve is on the verge (so it says) of its second hike in a year without having achieved stable economic growth or a healthy labor market. Employment is better judged by the lack of wage growth than by the self-serving and artificial definitions of the non-farm payrolls report.
What will be the likely results of these policy failures in the financial and currency markets? How will they be presented to the world by their originators. How might politicians confront the lack of economic progress eight years after the financial crisis and recession?
Join us for a 'tour d'horizon' of central bank policy.
Latest Live Videos
Editors’ Picks
EUR/USD weakens to near 1.1900 as traders eye US data
The EUR/USD pair loses ground to around 1.1905, snapping the two-day winning streak during the early European trading hours on Tuesday. Markets might turn cautious ahead of the release of key US economic data, including US employment and inflation reports that were pushed back slightly due to the recently ended four-day government shutdown.
GBP/USD edges lower below 1.3700 on UK political risks, BoE rate cut bets
The GBP/USD pair trades on a weaker note around 1.3685 during the European session on Tuesday. The Pound Sterling edges lower against the US Dollar amid political risk in the United Kingdom and rising expectations of near-term Bank of England rate cuts.
Gold drifts lower as positive risk tone tempers safe-haven demand; downside seems limited
Gold drifts lower during the Asian session on Tuesday and snaps a two-day winning streak, though it lacks strong follow-through selling and shows some resilience below the $5,000 psychological mark amid mixed cues. The outcome of Japan's snap election on Sunday removes political uncertainty, which, along with signs of easing tensions in the Middle East, remains supportive of the upbeat market mood.
Bitcoin Cash trades lower, risks dead-cat bounce amid bearish signals
Bitcoin Cash trades in the red below $522 at the time of writing on Tuesday, after multiple rejections at key resistance. BCH’s derivatives and on-chain indicators point to growing bearish sentiment and raise the risk of a dead-cat bounce toward lower support levels.
Follow the money, what USD/JPY in Tokyo is really telling you
Over the past two Tokyo sessions, this has not been a rate story. Not even close. Interest rate differentials have been spectators, not drivers. What has moved USD/JPY in local hours has been flow and flow alone.
Here is what you need to know on Tuesday, February 10:
Japanese stocks surged to record highs on Monday, as Prime Minister Sanae Takaichi's Liberal Democratic Party (LDP) basked in a historic election victory.