Central Bank News from Japan as Investors Await ECB Press Conference

June 2, 2016

Bank of Japan Board member Sato spoke sharply in opposition to the current policy stance.  He had voted against negative interest rates earlier this year and is even more convinced now that the strategy of quantitative easing and negative interest rates no matter what in an effort to restore 2% inflation as soon as possible is doing great damage to financial institutions and consumer confidence.  It is thus doomed to fail.  Sato wants the BOJ to back off from this strategy and instead take a longer term approach that focuses on lifting wages commensurately with prices.

The dollar fell 0.5% against the yen in response, slipping below the 109 level.

Japan’s Nikkei-225 index fell 393 points or 2.3%, and the 10-year JGB yield edged up a basis point.  Sato’s comments cast doubt on whether Governor Kuroda will have the votes to initiate even more stimulus at the mid-June meeting.

Meanwhile, the ECB Governing Council is meeting today in Vienna but thought unlikely to modify its interest rate structure.  ECB President Draghi will begin a press conference at 12:30 GMT.

The dollar has advanced 0.6% and 0.3% against the Australian and New Zealand currencies and by 0.2% versus the loonie.  The U.S. dollar has edged 0.1% lower against the euro, Swiss franc and sterling and is steady relative to the yuan.

The Japanese stock market swoon was not matched elsewhere, although Australia’s market fell 0.8%.  Stocks rose 0.4% in China, 0.5% in India, 0.3% in Hong Kong and 0.2% in Singapore.  In Europe, equities have so far climbed today by 1.3% in Spain, 0.4% in the U.K., 0.3% in Greece, and 0.2% in Germany and Switzerland.

Italy is shut for Republic Day, which observes the anniversary of the abolished monarchy in 1946.

Gold is 0.3% higher at $1,218.5 per ounce, while oil is steady at $49.02 per barrel.

The 10-year German bund is steady, and the 10-year British gilt yield is a basis point firmer.

Producer prices in the eurozone dropped 0.3% in April, their 5th decline in six months, and recorded a 12-month 4.4% rate of drop.  Energy prices fell 12.5% on year, and other producer prices were 1.2% lower.

Consumer confidence in Japan edged up a mere 0.1 to a 2-month high of 40.9 in May.  The average score in the first quarter of 2016 was 41.4 where a reading of 50 represents neutrality between optimism and pessimism.

Japan’s monetary base posted a smaller 25.5% on-year rise in May after growth of 26.8% in April and 28.8% in 1Q.

Japanese stock and bond transactions generated a JPY 117 billion net capital inflow last week versus a JPY 334 billion net outflow in the prior week.

Mexico’s manufacturing purchasing managers index improved 1.2 points to a 13-month high of 53.6 in May.

But according to the JP Morgan compilation, the global factory PMI fell to the 50.0 breakeven point last month from readings of 50.1 in April, 50.6 in March, and 50.9 in January.

The British construction purchasing managers index slumped another 0.8 points to 51.2, near to a 3-year low.  Five months earlier at end-2015, such stood robustly at 57.8.

Spain’s number of unemployed workers slipped below 4 million in May for the first time since August 2010.

Romanian producer prices dropped 3.0% in the year to April, and Cypriot consumer prices dropped 2.1% in the year to May.

Sweden’s current account surplus equaled SEK 64.3 billion last quarter, up from SEK 62.7 billion in 4Q15 but down from SEK 66.3 billion a year earlier.

Just in: The ECB did not change its interest rates nor unveil new unconventional measures.  The focus is on implementing stimulus that had previously been announced.

Scheduled U.S. releases today are the ADP estimate of private jobs growth, the New York area PMI (NAPM), and weekly jobless insurance claims.

Copyright 2016, Larry Greenberg.  All rights reserved. No secondary distribution without express permission.

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