Suga giving the office, BoJ Holding the policy!
Market analyst – IFC Markets
The real crazy week starts from tomorrow. In the Asian season, we will have the monetary policy meeting and interest rate decision of the Bank of Japan, before waiting for the FED announcement.
The BoJ monetary meeting could have some surprises this week, however since the next outlook report will be out at the October gathering and Mr. Prime Minister, Suga stepping aside, expecting any changes now will be a bit hasty decision. That’s why most likely we will have the target of -0.1% for short-term rates and 0% for the 10-year bond yield, under its negative interest rate policy (NIRP) and yield curve control (YCC) unchanged.
On the economic data front, the latest published manufacturing PMI data eased to 52.7 from the previous 53.0, while the services PMI gauge saw a deeper plunge into the contractionary territory to 42.9. Reduction in the service sector can clearly show the effect of Covid-19 resurgence. This is also can be another reason for BoJ to stay hold and wait for the new Prime Minister and economic growth to decide on the new policy in the next meetings.
Even though the reopening going forward is a bit faster than before, as vaccination improving and newly infected cases decreasing, still we have to wait for the central bank’s outlook and see how important these factors will be in their outlook. Holding the current dovish policies will not be risky for Japan, as they do not have any inflationary pressures like Eurozone and United States. The latest published numbers, showing the Core CPI at -0.2% in July, which is way less than the central bank inflation target at 2%.
On the political side, Mr.Suga will leave the office and the New Prime minister will be elected by the LDP party, at a meeting on September 29. And the general election will be in October, even though there is a chance to move it to November. An important note about all three candidates is their stimulus packages, which will help the market to rely on further dovish policies and government supports.
With expected policies from the Japanese central bank and hopes of growing ahead of the new PM and upcoming election, we are still hoping to see the Nikkei 225 at higher levels and lead the other Japanese indices. Over trend is remains bullish.
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