Welcome to the Investors Trading Academy event
of the week. Each week our staff of analysts and educators tries to provide you a better
understanding of a major market event scheduled soon and that have an effect on the global
markets. In the month of October the Bank of Japan is holding two major meetings. At
its earlier meeting this month, the bank failed to take any actions and the central bank director
seemed to implicate that the bank would not be injecting any additional stimulus.
Bank of Japan governor Haruhiko Kuroda has spoken in relatively upbeat terms on the economic
and inflation outlook, including his reiteration last week that disinflationary energy trends
are likely to be transitory. There are a few signs that the second quarter
slowdown is starting to turn around, with the latest household survey report showing
consumer spending picking up over the summer, while wage growth is also making modest improvements.
Economic data was released from Japan has unfortunately been disappointing. These economic
data points indicate that economic activity in Japan is slowing down, and most importantly,
that trade activities declined sharply in Q3. Exports have dropped significantly, and
likewise industrial activities and trade balance. This is very bad for the Japanese economy,
especially as it points to lower growth. The Bank of Japan is expected to cut its growth
and inflation outlook for this fiscal year at a rate review this week but only slightly
tweak its projections for next year, sources said, possibly tempering expectations that
the central bank will soon ease monetary policy further.
By not straying far from its current projections for next year, the BoJ can maintain that it
is still broadly on course to meet its inflation goal of 2 per cent next year without needing
to step up its massive asset purchase program, people with direct knowledge of the matter
said. Critics say the program has been only marginally
effective and distorts the bond market, and the BOJ board itself has not been unreservedly
behind it. Finance Minister Taro Aso also expressed doubt on Friday that further monetary
stimulus would help achieves the inflation target.
European Central Bank President Mario Draghi said the ECB’s quantitative easing program
would continue beyond next September if needed. Traders are now betting that ECB’s action
may force the Bank of Japan to boost its quantitative easing program as well, likely after next
week’s October 30 meeting. The final BOJ forecasts, which represent the
median of the board members’ projections, could be worse if some members offer bleaker
assessments than expected now. Kuroda has said he sees no immediate need
to ease further, stressing that a tightening job market will lead to wage gains and boost
consumption, helping Japan generate modest inflation.
Not all board members share Kuroda’s optimism, with pessimists fretting that the global slowdown
may drag on Japan’s growth longer than expected. Some also worry about the strength of consumption.