Banking System Concerns and Further Evidence that Growth Has Slowed
April 28, 2023
The dollar jumped 1.6% against the yen following the first Bank of Japan Board meeting led by Governor Ueda. He did not initiate a clean break away from his predecessor’s policy, retaining a short-term interest rate of -0.1%, an target of around zero percent for the 10-year JGB yield, with a 0.5 percentage point daily buffer, and a commitment to more stimulus if and when such is deemed necessary to keep an eventual achievement of 2% inflation on track. There is to be a broad review of the overall approach to monetary policy and how such affects all aspects of Japan’s economy, but that study could take 18 months and so has no immediate policy implications. Rate-setting decisions were made unanimously. A newly published quarterly BOJ Outlook for Economic Activity and Prices revises projected GDP growth this fiscal year down 0.3 percentage points to 1.4% and projects lessening growth of 1.2% in fiscal 2024 and 1.0% in fiscal 2024. Likely CPI inflation was bumped up to 1.8% for FY23 and 2.0% for FY24 but then is seen receding to a sub-target 1.6% in fiscal 2025. Core CPI inflation this fiscal year of 2.5% will be followed by 1.7% in fiscal 2024 and fiscal 2025.
Against other currencies, the dollar has so far advanced today by 0.7% versus the Australian dollar, 0.4% vis-a-vis the euro, 0.3% relative to the loonie and 0.1% against sterling.
Equities closed up 1.4% in Japan and 1.1% in Taiwan and China today. The Italian and Spanish stock exchanges fell over 1.0% so far, however, and U.S. futures are in the red, too.
Ten-year sovereign debt yields has declined by 12 basis points in Germany, 8 bps in Japan, 7 bps in the U.S., and 6 bps in Great Britain.
WTI oil rebounded 0.8%, but prices for Bitcoin and gold are down 0.8% and 0.5%.
Several Japanese data were reported prior to the Bank of Japan announcement.
- Industrial production rose 0.8% in March, enough to warrant an upgraded trend assessment of “showing signs of increasing at a moderate pace.” But output still fell 1.8% in the first quarter and was 3.0% than its year-earlier level in that period.
- Retail sales in March advanced 0.6% on month and by a greater-than-anticipated 7.2% on year.
- Housing starts and construction orders were respectively 3.2% and 4.1% lower in March than a year earlier.
- CPI inflation in April in Tokyo 0.3 percentage points to a 3-month high of 3.5%. Excluding fresh food, such also climbed to 3.5% in spite of a 2.6% on-year drop in energy. Excluding fresh food and energy, CPI inflation accelerated to 3.8% and showed its biggest month-on-month increase (0.6%) in 27 months.
- Japan’s jobless rate climbed 0.2 percentage points to a 14-month high of 2.8% in March.
Like the 1.1% annualized quarter-on-quarter rise of U.S. GDP in 1Q 2023 reported yesterday, GDP in the 20-nation euro area went up by a smaller-than-assumed non-annualized 0.1% in the first quarter after being unchanged in the final quarter of 2022. That’s as close a margin to missing a recession as possible. In the latest quarter, German GDP stagnated, and French GDP rose just 0.2%. Spanish and Italian GDP went up 0.5%, and Portuguese GDP jumped 1.6%. Euroland GDP was 1.3% higher than a year earlier, similar to the 1.6% advance in U.S. GDP between the first quarters of 2022 and 2023.
U.S. personal consumption reported today was flat in March, which also was below expectations. The PCE price deflator ticked 0.1% higher on month, but the 12-month rate of increase dropped to a 22-month low of 4.2% from 5.1% in the prior month. Core PCE price deflation of 4.6% was down from 4.7% in the prior two months but has been confined between 4.6% and 4.8% over the past five months.
Canadian GDP growth slowed significantly to 0.1% in February. Industrial production also rose 0.1% that month.
Mexican GDP growth of 1.1% last quarter exceeded expectations and lifted on-year growth to a 2-quarter high of 3.9%.
German CPI inflation slowed 0.2 percentage points to 7.2% in April, lowest since August 2022 and down from a record 10.4% last October. German import price inflation swung into negative territory in March versus last August’s 581-month high of 32.7%; at -3.8%, such was the biggest 12-month drop since late 2020.
French CPI inflation unexpectedly rose 0.2 percentage points to 5.9% in April, not far from February’s 38-year high of 6.3%. French PPI inflation of 12.9% in March was down from a record high of around 30% last August.
Spanish CPI inflation of 4.1% in April was above March’s 19-month low of 3.8%.
Portuguese CPI inflation slowed to a 13-month low of 5.7% in April from a 365-month high of 10.1% last October.
Sri Lankan CPI inflation of 35.3% in April was its lowest in a year and down from a record 67.4% last September.
Russia’s central bank policy rate, which has been 7.5% since September, was left unchanged.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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