From Marc Chandler at Bannockburn Global Forex, Saturday, January 14:
The week ahead is chock full of data, including Japan, the UK, and Australia's CPI. The UK and Australia report on the labor market. The US, UK, and Canada also report retail sales. The early Fed surveys from New York and Philadelphia for January will be released. China's December data are due, and it is also expected to report its estimate of Q4 GDP, where some economists forecast a contraction. While headline risk is associated with these economic reports, we suspect they will have little bearing on expectations of central bank policy. It seems that the adjustment of interest rate expectations for the Federal Reserve has gone as far as it can ahead of the FOMC meeting on February 1, perhaps providing a more consolidative tone for the dollar after its recent slump.
The highlight of the week is the Bank of Japan meeting. After being taken by surprise last month, many market participants are cautious amid talk of follow-up action. Barring new moves away from its extraordinary monetary policy, the focus may be on the updated BOJ growth and inflation forecasts. The People's Bank of China will set the one-year loan prime rate. It has been at 2.75% since last August. Most do not expect a cut quite yet, but it may increase the volume. The central bank of Norway. It hiked by 25 bp in December to 2.75%. Underlying inflation that adjusts for tax changes, while excluding energy, was 5.7% last month. Norges Bank indicated scope for another quarter-point hike in Q1 23 and then could be done.
Japan: The BOJ meeting concludes on January 18. After the surprising move last month, the BOJ will likely be content monitoring the impact. However, the Yomiuri newspaper reported that the Japanese central bank would consider fresh measures, including adjusting its bond purchases to address the volatility sparked by last month's action. The BOJ has bought a stunning ~$75 billion of government bonds in the previous two sessions. The market bought yen in response to the report, and some banks adjusted their policy outlooks. Previously speculation around the meeting focused on the new economic forecasts, particularly a revision higher for inflation. The median forecast among BOJ officials in October was for core CPI (excludes fresh food) to be 2.9% this fiscal year. It has averaged 2.7%, but on January 19, the December CPI figures will be reported, and the Tokyo report warns that the core rate may rise to 4.0% from 3.7%. Excluding fresh food and energy, the median forecast among BOJ members was 1.8%. So far in this fiscal year, it has averaged 1.6%. Translated to the national figures, the core-core measure may rise to 3.0%. The adjustment of the BOJ's 10-year bond yield band may be changing expectations for who replaces BOJ Governor Kuroda when his second term expires in April. In our January monthly, we suggested that it appeared Deputy Governor Masayoshi Amamiya had the advantage over former Deputy Governor Nakaso Hiroshi. However, Nakaso has written about the sequencing of exiting the extraordinary policy, beginning with yield-curve control, and he appears to be favored now.
The dollar tested retracement support near JPY127.50 ahead of the weekend. A key chart point below there is near JPY126.60, the 50% retracement of the greenback's rally from the March 2020 low (~JPY101.20). Furthermore, we suspect that the BOJ meeting may disappoint and suspect the dollar would react positively. The JPY129.70-JPY130 are may be the first important hurdle.
US: The fourth quarter appears to have ended on a soft tone....
....MUCH MORE
