CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Could the BoJ pull the trigger next week?

06:53 26 July 2019

Summary:

  • Japanese inflation slows down more than expected, core prices remain intact though
  • BoJ officials are divided when it comes to easing monetary policy next week
  • Stock markets give back their earlier gains, Amazon and Alphabet earnings

Rising pressure

Japanese headline inflation slowed down more than expected in July, falling to 0.9% in annual terms from 1.1% seen in the prior month. The market consensus had called for a tiny decrease to 1%. At the same time, both core price indicators - excluding fresh food and fresh food plus energy - stayed intact at 0.9% and 0.8% respectively. It needs to be added that market expectations had suggested possible decreases in both gauges. Stubbornly low inflation in the Japanese economy is nothing new of course, however, with rising pressure from other central banks to make monetary policy more expansionary, the Bank of Japan might be pushed to the wall sooner or later if it wants to avoid undue yen appreciation. 

Major risk on the horizon

Among the top three central banks the two - the Federal Reserve and the European Central Bank - have already pledged to loose monetary conditions with the former expected to do so as soon as next week. In this environment there will be mounting pressure on the BoJ to follow. In fact, the BoJ has still reasons to ease monetary policy as price growth remains muted while we have another serious downside risk to the economic outlook - a sales tax hike scheduled for October. An increase in sales tax to 10% from 8% may have a substantial effect on private consumption and the Japanese authorities seem to know it (the economy saw the sharp decline in consumption in 2014 when the tax was hiked to 8% from 5%). As such, the government has rolled out some mitigating measures earlier this year aimed at offsetting the expected adverse impact. 

Start investing today or test a free demo

Open account Try demo Download mobile app Download mobile app

Limited firepower

Will them prove enough? It will turn out in the last quarter of the year, but having in mind what happened 5 years ago, the Bank of Japan may be on alert to act if necessary. Meanwhile, we were offered some news overnight that BoJ officials are divided on whether to act as soon as next week. Some of them see little to be gained from strengthening the bank’s interest rate pledge. What’s more, such an approach would even underline the bank’s limited firepower at a time when other major central banks are widely expected to ease policy. That said, one may expect that the BoJ could tweak its forward guidance once again, after doing so just three months ago by pledging to keep rates extremely low “at least through around spring 2020”.

The exchange rate could be an important factor to consider for the Bank of Japan when it meets next week (one day before the Fed). Source: xStation5

Stocks lower

The US stock market finished Thursday’s trading lower, with the NASDAQ falling as much as 1%. Other indices also went down - SP500 fell 0.5% and Dow Jones decreased almost 0.5%. These gloomy results came after heavy declines in Europe, with DAX plunging 1.3% as investors were disillusioned with the ECB. We also got some earnings from the US - Amazon showed EPS of $5.22 (exp. $5.56) and revenue of $63.4 billion (exp. $62.46 billion) while Alphabet showed off EPS of $14.21 (exp. $11.49) and revenue of $31.7 billion (exp. $30.84 billion). In Asia, major indices area trading down with the Japanese NIKKEI and the Hang Seng leading the losses and falling by more than 0.5%. 

In the other news:

  • The House passed the debt-limit raising bill, now it’s Senate turn to vote

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

Back
Xtb logo

Join over 1 Million investors from around the world

We use cookies

By clicking “Accept All”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

This group contains cookies that are necessary for our websites to work. They take part in functionalities like language preferences, traffic distribution or keeping user session. They cannot be disabled.

Cookie name
Description
SERVERID
userBranchSymbol cc 2 March 2024
adobe_unique_id cc 1 March 2025
test_cookie cc 1 March 2024
SESSID cc 9 September 2022
__hssc cc 1 March 2024
__cf_bm cc 1 March 2024
intercom-id-iojaybix cc 26 November 2024
intercom-session-iojaybix cc 8 March 2024

We use tools that let us analyze the usage of our page. Such data lets us improve the user experience of our web service.

Cookie name
Description
_gid cc 9 September 2022
_gat_UA-22576382-1 cc 8 September 2022
_gat_UA-121192761-1 cc 8 September 2022
_ga_CBPL72L2EC cc 1 March 2026
_ga cc 1 March 2026
AnalyticsSyncHistory cc 8 October 2022
af_id cc 31 March 2025
afUserId cc 1 March 2026
af_id cc 1 March 2026
AF_SYNC cc 8 March 2024
__hstc cc 28 August 2024
__hssrc

This group of cookies is used to show you ads of topics that you are interested in. It also lets us monitor our marketing activities, it helps to measure the performance of our ads.

Cookie name
Description
MUID cc 26 March 2025
_omappvp cc 11 February 2035
_omappvs cc 1 March 2024
_uetsid cc 2 March 2024
_uetvid cc 26 March 2025
_fbp cc 30 May 2024
fr cc 7 December 2022
muc_ads cc 7 September 2024
lang
_ttp cc 26 March 2025
_tt_enable_cookie cc 26 March 2025
_ttp cc 26 March 2025
hubspotutk cc 28 August 2024

Cookies from this group store your preferences you gave while using the site, so that they will already be here when you visit the page after some time.

Cookie name
Description
personalization_id cc 7 September 2024
UserMatchHistory cc 8 October 2022
bcookie cc 8 September 2023
lidc cc 9 September 2022
lang
bscookie cc 8 September 2023
li_gc cc 7 March 2023

This page uses cookies. Cookies are files stored in your browser and are used by most websites to help personalise your web experience. For more information see our Privacy Policy You can manage cookies by clicking "Settings". If you agree to our use of cookies, click "Accept all".

Change region and language
Country of residence
Language