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BOJ Keeps Policy Unchanged, Up Economic Outlook

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  • BOJ Keeps Policy Unchanged, Up Economic Outlook

The Bank of Japan (BOJ) on Tuesday upgraded its economic assessment, citing improvement in exports and better business sentiment than previously envisaged. Both the yield-curve and asset-purchase programs were left unchanged.

However, inflation expectations remain weak and risks to the outlook abound, ranging from developments in the Chinese and U.S. economies to Brexit and geopolitical uncertainties.

Most analysts had already adopted the view that the BOJ would stand pat in coming months with its targets for short- and long-term interest rates, even before Trump’s election victory sent the yen tumbling, easing any pressure for additional action to stoke inflation. After the shock of negative rates in January, a comprehensive policy review midyear and new direction since September, a majority of economists surveyed by Bloomberg don’t expect any additional easing before Governor Haruhiko Kuroda steps down in 2018.

“In the spirit of the holiday season Kuroda delivered on cue with no surprises,” said Stephen Innes, a Singapore-based senior trader at foreign exchange firm Oanda Corp. While the upgrade of the economic assessment may further damp domestic easing expectations, “Trumpflation” is likely to see the dollar strengthen further against the yen, said Innes.

The focus for investors now moves to the BOJ’s efforts to contain a surge in yields amid a global bond sell-off. The central bank’s shift in policy framework in September to yield-curve control was meant to make its stimulus program more sustainable as it neared the practical limits of asset purchases.

Speaking in a news conference later Tuesday, Kuroda said it was too soon to discuss raising the long-term yield target or even the specifics of raising rates. He said the BOJ won’t raise the target in response to hikes abroad.

Kuroda said an appropriate yield curve had been achieved and current policy should be continued.

“Differences in monetary policies can have some impact on currencies, but at this moment I don’t see the prospect of the yen becoming a problem by weakening excessively,” Kuroda said. “The currency is at a level similar to around February, so it’s not at a surprising level.”

Currency Market

The yen weakened as Kuroda spoke, trading at an intraday low of 117.96 per dollar around 3:50 p.m. in Tokyo. It hit a 10-month low last week. A weak yen generates inflationary pressures through higher import costs, while boosting corporate profits that could filter through to wage growth.

The yen had gained about 13 percent this year before the U.S. election, and has since tumbled about 10 percent. Credit Suisse Group AG last week revised down its three-month prediction for the dollar-yen rate to 122 from 111.

Separately to the BOJ, which won’t provide numerical forecasts until its next meeting, the Cabinet Office released upgrades for its estimates for the economy, and Finance Minister Taro Aso confirmed fiscal spending plans:

  • Real gross domestic product will rise 1.5 percent in the next fiscal year starting April 1, versus a previous estimate of 1.2 percent.
  • Nominal growth will increase to 2.5 percent, from previous estimate of 2.2 percent.
  • Overall consumer prices will advance 1.1 percent, from previous estimate of 1.4 percent.
  • Government’s initial budget for next year will be 97.5 trillion yen ($830 billion), an increase of 0.8 percent on the same figure this year.
  • Like in 2016, the government is expected to follow up with supplementary budgets in 2017.

The BOJ kept its rate on some bank reserves at -0.1 percent and reiterated its pledge to keep the yield on the 10-year Japanese government bond at around 0 percent. Both rates are core elements of the new framework it announced in September.

Surging global yields are posing a challenge to the central bank. It conducted its first fixed-rate operation to contain rising yields last month, and it increased purchases during a bond-buying operation last week.

Market participants are speculating that the BOJ will need to do more after the 10-year JGB yield hit 0.1 percent last week, a level seen by some as the upper limit of the central bank’s tolerance.

“No need for more easing doesn’t mean the BOJ is free from problems,” said Naomi Muguruma, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. “They said they can control a bond market and the market is already giving them a challenge.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020

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COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020

Nigeria’s oil revenue declined by 41.44 percent in the first nine months of 2020 to $2.033 billion, according to the latest data from the Nigerian National Petroleum Corporation, NNPC.

This represents a decline of 41.44 percent from $3.47 billion filed in the same period of 2019 when there was no COVID-19.

In the September 2020 edition of NNPC’s Monthly Financial and Operations Report (MFOR), revenue from oil and gas rose by 16 percent to $120.49 million in the month of September, a 66 percent or $234.81 million drop from $355.3 million posted in the same month of 2019.

The global lockdowns caused by the COVID-19 pandemic plunged Nigeria’s crude oil sales and global demand for the commodity. This was further compounded by Nigeria’s high cost of production compared to Saudi Arabia, Russia and others that were offering discounts to boost sales during one of the most challenging periods in human history.

Experts like Prof. Yinka Omorogbe, President of Nigeria Association of Energy Economics, NAEE, were not surprised with the drop in earnings given the effect of COVID-19 on the world’s economy.

She, however, called for the revamp of the nation’s petroleum sector laws and diversification of the economy away from oil revenue dependence. She said “Covid-19 made 2020 a very hot year and it battered the oil industry internationally and we are not an exception; so we could not have been unaffected”.

She also said the effect of the fall “is definitely a wake-up call; we have to diversify, strengthen our other resources and capabilities”.

Omorogbe, a former NNPC Board Secretary, urged the government and the operators in the sector to look inward and think strategically, stating: “think medium term, think of where they want to be and the government, above all, must think of how best we can utilize our resources, so that we can achieve our objectives once we know and define them.

“It is a clear wake-up call, if not we will just sit here and find that we have become one of the poorest nations in the world”, she noted.

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Commodities

Crude Oil, Other Commodities Closing Price for Monday

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Crude oil

Crude Oil, Other Commodities Closing Price for Monday

Brent crude oil, Nigeria’s crude oil benchmark, gained 47 cents to $55.88 per barrel on Monday, while the US crude oil expanded by 50 cents to $52.77 per barrel.

Gold for February delivery fell $1 to $1,855.20 an ounce. Silver for March delivery fell 7 cents to $25.48 an ounce and March copper was little changed at $3.63 a pound.

The dollar fell to 103.80 Japanese yen from 103.83 yen. The euro fell to $1.2139 from $1.2167.

Wholesale gasoline for February delivery rose 1 cent to $1.56 a gallon. February heating oil rose 2 cents to $1.59 a gallon. February natural gas rose 16 cents to $2.60 per 1,000 cubic feet.

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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.

The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.

According to Michael McCarthy, the Chief Market Strategies, CMC Markets, the surged in gold price is a result of the projected drop in dollar value or uncertainty.

He said, “The key factor appears to be the (U.S.) currency.”

As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.

Also, the effectiveness of the vaccines can not be ascertained until wider rollout.

Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.

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