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BoJ: Latest JPY weakness not a concern

  
  Analysis

BoJ

The one notable mover in October has been significant JPY weakness. This has been very marked.See below for the monthly snapshot on JPY weakness.

BoJ

So, the one question that was crucial was, ‘Is the BoJ worried about this?’ The answer is ‘no, not at all’. The BoJ is quite happy to see more JPY weakness. BoJ’s Governor Kuroda said:

  • JPY moving within the range of current fundamentals
  • The yen has weakened a ‘small amount’

With this major concern out of the way the rest of the meeting was entirely unspectacular. The BoJ maintained policy settings with rates kept at -0.10% and the 10 year JGB yield target kept at round 0% as expected. Revisions were both made lower for core CPI and GDP. Core CPI was down to 0.0% vs 0.6% expected and GDP growth was down as well to 3.4% vs 3.8% previous. Consumer inflation was expected to rise, as even deflationary Japan shows vulnerability to inflation. The 2022 forecast for inflation is 0.9% and 1.0% for 2023.

The takeaway

No inflation worries for the BoJ. No fears over the weak JPY. This means the JPY can remain a funding currency and is a great currency to pair with currencies set to raise rates. Dips in the NZDJPY remain medium term buys and the BoJ meeting has done nothing to change that. You can also see the decent seasonals around JPY weakness here below from Seasonax.

Central banks

Yellen: US expects China to meet trade deal commitments

  
  Analysis

Remarks by US Treasury secretary, Janet Yellen

  • But eventually lowering tariffs in a reciprocal way could be a desirable outcome
  • Lowering tariffs could have “disinflationary” effect
  • Current inflation surge is a result of supply bottlenecks, higher energy prices
  • Inflation should ease in 2H 2022

This seems more aimed at easing the burden for businesses and consumers as inflation continues to pose a major problem across multiple sectors/industries. If they want to, they could but don’t expect China to budge on trade commitments. The deal has and always be one that is just for show. They know that, we know that.

OPEC+ meet this week. 400K barrel increase likely to remain, but some prospect of more.

  
Analysis, Crude

An energy analyst at KPMG says OPEC+ is most likely to stick with the earlier agreed top plan of a 400,000 barrel per day increase.

But the group may ponder increasing the amount “marginally, or more substantially,”
  • by 600,000 barrels to 1 million barrels per day
This is from a piece at DJ/Market Watch but there isn’t much from the analyst to support thoughts on increasing the output.
Countering the argument OPEC+ may consider boosting output above 400k barrels are reports over the weekend (vai Bloomberg) that the OPEC+ Joint Technical Committee (JTC) significantly downgraded expectations of a market deficit at their meeting last week:
  • now expects the oil market to show a deficit of just 300,000 barrels per day in Q4, down from initial expectations of a 1.1m bpd deficit
  • The role of the JTC is to monitor the market, the JTC meets ahead of every ministerial meeting of OPEC+. The JTC met last Thursday.
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The Organization of the Petroleum Exporting Countries and allies, OPEC+, hold their monthly ministerial meeting on Thursday.
An energy analyst at KPMG says OPEC+ is most likely to stick with the earlier agreed top plan of a 400,000 barrel per day increase.
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