Welcome to Extreme Investor Network, where we provide unique insights and analysis on the stock market, trading, Wall Street, and more. Today, we take a closer look at the potential impact of economic indicators on the Bank of Japan’s (BoJ) policy decisions and how it could affect the market.
Japan’s Services PMI:
On Wednesday, July 24th, economists are anticipating the Jibun Bank Services PMI to show an increase from 49.4 in June to 49.9 in July. A higher-than-expected PMI could signal a possible July rate hike by the BoJ, as the services sector plays a crucial role in driving inflation in Japan.
Investors should pay attention not only to the overall PMI number but also to the sub-components, especially prices. Higher wages could lead to increased private consumption, especially if a stronger Yen helps ease import price pressures.
Tokyo Inflation in Focus:
On Friday, the focus will shift to Tokyo’s core inflation rate, with economists expecting a rise from 2.1% in June to 2.2% in July. A higher-than-expected inflation rate could further solidify expectations of a July BoJ rate hike.
An uptick in consumer prices in Tokyo would align with national inflation trends, which have been increasing in recent months. This trend supports the likelihood of a rate hike by the BoJ in July.
Bank of Japan Plans to Cut Japanese Government Bond Purchases:
In addition to a potential rate hike, the BoJ has announced plans to reduce Japanese Government Bond (JGB) purchases in July. This move could have a significant impact on interest rate differentials between the US dollar and the Yen.
A reduction in JGB purchases could potentially lead to a narrowing of interest rate differentials, with a rate hike by the BoJ not being enough to shift the balance in favor of the Yen. This, coupled with a cut to JGB purchases, could result in a drop in the USD/JPY pair below 150.
What the Experts Say:
Economists have varying opinions on the potential July BoJ monetary policy decision. Chief Investment Officer Bob Elliot suggests that while inflation numbers have been on the rise, there may not be enough urgency to tighten monetary policy at this time.
On the other hand, Nataxis Asia Pacific Chief Economist Alicia Garcia Herrero believes that the BoJ may start quantitative tightening, which could have a more significant impact on the Yen than intervention.
US Economic Indicators:
Looking at US economic indicators, Wednesday will bring a focus on the housing sector. Economists are predicting a 3% increase in existing home sales for June, which could boost demand for the US dollar.
Higher demand for existing homes may lead to tighter inventories and increased house prices, potentially pushing rental prices up as well. This uptick in housing prices and rental costs could impact inflation expectations and the likelihood of future Fed rate cuts.
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