The yen trimmed its gains on Thursday as Bank of Japan Deputy said the central bank would not rule out deepening negative interest rates or any other easing steps needed to achieve its price target. Euro stayed steady as investors looked whether ECB decided to extend its asset purchase at its meeting later today.
Factors covering on EURJPY
According to the report from Eurostat on Wednesday (31/8), eurozone’s flash CPI rose less than expected in August. The data kept July pace as rising 0.2% last month, compared to economists’ forecasts for a 0.3% increase. The core CPI, which excludes food, energy, alcohol, and tobacco costs, edged up by 0.8% in August, missing expectations for a steady growth of 0.9%. A couple of weaker-than-expected readings seemed to cast significant pressure on the euro zone’s monetary authority as under-targeted inflation. ECB has been struggling with inflation holding near zero more than 3 years, while its rate objective is 2%. This low inflation posed a big threat to the banks’ credibility and the viability of inflation targeting.
Although the ECB has attempted to lift up the disappointing inflation with some measures including cutting the benchmark rates into negative territory and publishing a quantitative easing (QE) program worth $1.35 trillion in the past year and a half, these dovish monetary policies seemed not to be effective.
The jobless rate in July in the Eurozone remained stuck in double-digit territory. The number of people out of work in Europe ticked up by 10.1%, topping the analysts’ estimated reading of 10.0%. This reading remained the same pace with that in June. Moreover, the bloc also suffered pessimistic PMI readings from Markit. The final manufacturing purchasing managers’ index (PMI), whichout on Thursday (1/9), for August fell to 51.7. This was below views for 51.8 and a previous print of 51.8. This marked the weakest pace of expansion in three months. Eurozone Service PMI on Monday pointed to minor expansion of 52.8 points in August, shy of 53.1 points estimated. With unemployment hovering at 10% and industry sitting on vast unutilized capacity, markets do not expect the growth to take off in near term, putting a lid on inflation.
Yet, there were still better news from Eurozone Sentix Investor Confidence in September, which jumped to 5.6 points, above the previous month reading of 4.2 points. The Eurozone retail sales jumped 1.1%, the indicator’s strongest advance since January 2015. The gauge of reports indicated that the purchasing managers and investors were becoming more confident of the bloc economy’s recovery in the aftermath of historic “Brexit” triumph.
ECB policy meeting takes place on Thursday still remains the spotlight of the week for foreign exchange rate traders. A survey from Bloomberg said 40 out of 50 leading economists responded that they anticipated additional stimulus measures, which would take the asset-purchase program above the target of $1.9 trillion, from president Mario Draghi and his team in the September meeting, which could drag down the Euro aggressively.
Meanwhile, the Japan market have proved its strength against the doom-sayers with a chain of positive data released today. Japan growth was revised higher to 0.2%in the period April-June, higher than the statistics of zero from the initial quarter. Economists also forecast that the gross domestic product would hold steady at that level. Subsequently, the annualised pace of GDP advance was boosted to 0.7% quarter-on-quarter, higher than the preliminary reading of 0.2%. These numbers indicated that Japan’s economy has performed a lot better than expected. Separate data from the Ministry of Finance suggested that the country’s current account declined to a seasonally adjusted $1.45 trillion, from $1.65 trillion in the preceding month.
Thursday, BOJ Deputy Governor Hiroshi confirmed that it was vital for the central bank to balance the economic benefits of negative rates against its impact on financial sector profits. Moreover, BOJ Governor Kuroda signaled his readiness on Monday (5/9) to ease policy further. It shrugged off some concerns that monetary stimulus is reaching the limits of its effectiveness. A majority of analysts polled by Reuters have been bracing for a potentially underwhelming policy announcement from the BOJ on September 21, when it is expected to unveil the results of a comprehensive policy review it promised in July. This came as a strong pressure over the country’s currency.