Overview and expectations for September 19, 2018

Overview and expectations for September 19, 2018 including Bank of Japan Policy Rate

This overview highlights the most significant economic events taking place today: Bank of Japan’s (BoJ) Policy Rate, BoJ Monetary Policy Statement, BoJ Press Conference and US Crude oil inventories. Traders can benefit from anticipating and understanding how these data releases can affect the markets.

Today’s overview focuses on Bank of Japan’s (BoJ) Policy Rate, Monetary Policy Statement and Press Conference in addition to the latest US Crude oil inventories. This data can affect the markets and the respective country’s currency. Traders can benefit by anticipating those effects and trading accordingly.

BoJ POLICY RATE EXPECTED TO REMAIN THE SAME

BoJ Policy Board members meet regularly to reach a consensus on where to set the interest rate. Traders closely observe interest rate changes as short-term interest rates are one of the key trading signals as they indicate changes in a currency’s valuation.

If the BoJ is hawkish about the inflationary outlook of the economy and increases the interest rates, it is bullish for the Japanese Yen (JPY). However, if the BoJ has a dovish view of the economy and keeps the ongoing interest rate, it is bearish.

The BoJ has adopted an extremely low interest rate of -0.1% since 2016 and it remains unchanged since then. This was part of the country’s industry expansion strategy, decreasing unemployment rates and increasing wages. The low rate is also a reaction from the BoJ to a rise in inflation to 2.0%.

The interest rate is expected to remain the same until the end of this quarter. This is bearish for the JPY.

BoJ MONETARY POLICY STATEMENT

The Policy Board of the BoJ regularly releases an official Monetary Policy Statement. The statement gives signals to future changes in monetary policy by communicating the committee’s vote outcome concerning interest rates. It also covers other policy measures including the economic conditions influencing their decision.

According to BoJ Executive Director Kazuo Momma, Japan should put an end to the extremely low rates because consumption remains low as households are not receiving a return on their investment and savings. A rate hike could result in a rise value for the JPY.

However, BoJ Chief Haruhiko Kuroda dismissed the prospect of a rate hike for the foreseeable future. Kuroda also advised that “We don’t specify the period, such as whether it is one year, three years or five years […] It’s a commitment that we will maintain the current low levels (of rates) as long as uncertainty lingers”.

As a result, this could have a bearish reaction for the JPY.

BoJ PRESS CONFERENCE

The BOJ Press Conference looks at the factors that affected the most recent interest rate decision, the overall economic outlook, inflation and gives insights into future monetary policy decisions.

During July’s press conference, Kuroda said the BoJ will adopt a more flexible policy towards bond yields. In addition, he noted that the 10-year Japanese Government Bond extension will not lead to interest hikes. He further committed to buying of Exchange-Traded Funds (ETFs) winding the purchases to the Topix index to 6 trillion. The BoJ will still follow its Quantitative Qualitative Monetary Easing (QQE) framework to reach its inflation target of 2.0%.

For traders this is most likely to mean there will be no policy changes in the upcoming press conference, indicating bearishness for the JPY.

US CRUDE OIL INVENTORIES

Crude Oil barrel inventories are measured weekly by the Energy Information Administration (EIA) to identify change in the level of stock held by US companies. The level of oil stocks affects the cost of petroleum goods and can affect inflation. Traders can use stock readings as indicators for changes in the US Dollar (USD).

When crude oil inventories exceed expectations, it indicates lower demand for petroleum products and is a bearish indicator for crude prices. The same is applicable when a decrease in inventories is less than expectations. When oil inventories are less than expected, it indicates higher demand for petroleum goods and is bullish for prices. The same applies when the expectation is for a decrease in inventories.

US crude oil inventories fell more than expected in the first week of September to 396.2 million barrels. Bullish sentiment was fuelled by data from the American Petroleum Institute last week. It indicated a decline of 8.6 million barrels compared to forecasts for a decline of 805,000 barrels. The US energy department also reported a much larger than expected decline in crude stockpiles on September 12 as inventories fell by 5.3 million barrels compared to analysts’ forecast for a fall of 805,000 barrels.

“We think oil market fundamentals are increasingly supportive of crude prices, at least at current levels,” said Gordon Gray, HSBC’s global head of oil and gas equity research.

However, on September 13 oil prices fell more than 2% as investors focused on the risk that emerging market crises and trade disputes could threaten demand.

Crude oil production in the US is expected to grow at a slower than expected rate in 2019.

For more information about how to use the economic data in today’s analysis to make the most out of your investments, contact FXB.

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