Japan continues to ignore Fed-led consensus on rate hikes: Eco Week

(Bloomberg) — The Bank of Japan is expected to stick to the negative interest rates that set it apart from the world’s other major central banks in the coming week.

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In the decision due Tuesday, Governor Haruhiko Kuroda will reiterate his out-of-sync stance that monetary stimulus must remain in place to secure sustainable inflation.

That contrasts with the aggressive talk about prices and interest rates that dominated the global central banking landscape over the past week, even as the Federal Reserve, European Central Bank and Bank of England opted for smaller hikes than before.

All 47 economists surveyed by Bloomberg predict no change in the BOJ’s policy settings, including the 0.25% cap on 10-year bond yields.

After a decade of trying to generate inflation in an economy known for deep-rooted price weakness, Kuroda is determined to keep the stimulus going in the remaining months of his term.

Inflation in Japan has been high for four decades, but more moderate than in the US and Europe. Data due Friday is expected to show core inflation rising towards 4%, but Kuroda is waiting for signs of wage growth to reinforce a price trend he says is still driven by higher commodity prices and a weak yen.

Speculation among investors and BOJ watchers therefore focuses on the policy trajectory following Kuroda’s resignation in April.

BOJ officials see the possibility of a policy review in 2023 after examining the momentum of wage growth and the magnitude of a global slowdown, people familiar with the matter said earlier this month. Past reviews have led to adjustments, including the move to yield curve control.

Until then, the world’s last anchor of low interest rates remains in place.

What Bloomberg Economics says:

“With a stand-by decision on key levers, investors will be watching for clues from Kuroda about whether and when the BOJ will conduct a policy review.”

—Yuki Masujima, senior economist. Click here for a full analysis

Elsewhere, the economic calendar is thinning as the year draws to a close and the Christmas holiday approaches.

Click here for what happened last week and below is our recap of what’s to come in the global economy.

USA and Canada

In the US, new data will be released on Friday on the Fed’s desired measure of inflation, consumer spending and incomes.

The personal consumer spending index in November will come under close scrutiny after a separate measure, the consumer price index, posted lower-than-expected results for two consecutive months to indicate that the worst of inflation is likely to be over.

Inflation-adjusted personal spending will provide insight into consumer demand and spending patterns in November, with a breakdown of spending on goods and services. Incomes in the US likely continued to rise in a still strong labor market.

The data comes after the Fed raised its reference rate by 50 basis points on Wednesday and officials indicated that borrowing costs in 2023 will be higher than investors expect before the hiking cycle ends.

“We still have some ways to go,” Fed Chairman Jerome Powell said at a news conference. “I wouldn’t see us considering rate cuts until the committee is confident that inflation is coming down to 2% in a sustainable way.”

Other data includes the Conference Board’s December consumer confidence gauge and reports on new and existing home sales in November.

In Canada, inflation is likely to slow to a nine-month low for November. That could encourage policymakers to ease the tightening after a year of aggressive rate hikes.

Beyond that, few reports are to be expected in the abbreviated last week of the year. On December 29, the penultimate trading day of 2022, releases on US home prices and regional manufacturing activity will be released, along with weekly unemployment claims.

Asia

The coming week will be quiet on the official data front in China. All eyes will be on high-frequency indicators as a flurry of Covid infections and the abandonment of strict containment policies ripple through the economy.

South Korea’s first trade figures will provide the latest snapshot of how the global economy is doing.

Down Under, the Reserve Bank of Australia’s minutes may shed more light on the trajectory of rate hikes and whether the possibility of a pause to tightening has been considered at all.

Indonesia has its last interest rate decision of the year on Thursday.

In the last week of the year, Japanese data on jobs, spending and industrial production will provide the final pulse on the world’s number three economy at the start of the week.

Meanwhile, South Korea is reporting output and inflation figures in the latter part of an otherwise calm period following a tumultuous year for Asian economies.

Europe, Middle East, Africa

In the wake of the ECB’s interest rate hike, the Eurozone will be quiet in the run-up to the holiday season. A speech by Vice President Luis de Guindos on Monday will be a highlight, with colleagues from Estonia, Lithuania and Slovakia also speaking.

Germany’s Ifo business confidence index could show a slight improvement on Monday at a time when Europe’s largest economy is expected to experience one of the worst contractions in the region.

Other areas of focus include consumer and manufacturing confidence in Italy on Friday, and more complete gross domestic product figures from across the eurozone.

Heading into the last week of the year, the first figures of Spanish and Portuguese inflation on December 30 will be highlights during an otherwise quiet period.

The UK will also go quiet after the fireworks of the latest rate hike by the Bank of England. Public finance data on Wednesday and a breakdown of GDP for the third quarter on Thursday are the main items on the calendar there. No BOE speeches are scheduled.

In Eastern Europe, Hungary’s central bank will set interest rates and release new forecasts on Tuesday amid a disagreement with the government over economic policy. The next day, the Czech counterpart is expected to keep borrowing costs unchanged for a fourth meeting.

In Africa, data from Ghana on Wednesday is likely to show third-quarter economic growth slowed from 4.8% to 4% in Q3 on the back of rising inflation, rising interest rates and a slump in the cedi boosting business confidence have affected.

Meanwhile, Turkey’s central bank is expected to keep its benchmark rate at 9% on Thursday, after meeting President Recep Tayyip Erdogan’s target of single-digit interest rates by the end of the year.

But a surprise is always possible in Turkey, and economists are expected to hedge their estimates and look closely at prospects for 2023, an election year.

Latin America

Mexico releases retail sales, economic activity in October and consumer price data mid-month. Economists expect a solid GDP proxy reading, but see headline inflation rising again while fundamentals remain stubbornly high.

Colombia’s GDP proxy results for October are expected to build on September’s strong 4.2%, thanks in no small part to investment returning to pre-pandemic levels. The minutes of the Banco de la República meeting on December 16 – where policymakers raised the 12% – could provide additional signals about a possible closing rate. Economists polled by the central bank expect it to rise another half point in January to 12.5%, with no easing before midyear.

On Thursday, Chile’s central bank will release the minutes of its December 6 meeting, at which policymakers kept policy rates at a record high of 11.25% and pledged to keep it there until they are confident inflation is heading towards the target.

An increase in consumer prices in November is likely to have advanced the timeline of any easing, as economists believe inflation will not return to target levels before 2025.

By the end of the week, mid-month Brazilian consumer price data is expected to confirm that inflation is well below 6%, down from mid-April but nearly twice the central bank’s target. All five of Latin America’s major inflation-focused central banks will fall short of their 2022 targets for the second year.

As in the rest of the world, the last week of the year offers a scarce harvest. Unemployment rates in Chile, Brazil and Mexico will be the main highlights, along with a measure of inflation in Brazil.

–With assistance from Robert Jameson, Malcolm Scott, Benjamin Harvey, Andrea Dudik, Reade Pickert, and Erik Hertzberg.

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