Japan’s inflation slowed, the risks the Bank faces rise Japan’s annual core inflation rate eased in August, adding to concerns that the Bank of Japan could eventually be forced to take additional easing steps to meet its 2% target. Until now, Bank of Japan Governor Haruhiko Kuroda expressed his optimism about Japan’s economy and showed no need for immediate action. Nevertheless, in recent comments, the Governor stated to take whatever steps are needed to achieve the inflation target. We believe that similar falls in the rate over the near future are likely to add pressure on the Bank to introduce further stimulus to its large-scale easing program and this could lead to a weaker yen. On top of that, signs of progress in Japanese pension-fund reforms that are part of Prime Minister Shinzo Abe’s growth strategy, add to JPY declines.
The dollar index is up approximately 0.6%, on track for its 11th consecutive week of gains. Based on the positive sentiment towards the greenback, I believe USD could keep its strength ahead of the final GDP data released later during the day.
EUR/USD dipped briefly below 1.2700 on Thursday, on the diverging monetary policies outlook between the Fed and the ECB, but bounced back to trade a few pips below our support-turned-into-resistance line of 1.2760. The latest set of weak data coming from the bloc, the recent comments from the ECB President to do whatever is necessary to prevent deflation risk, and the absence of any major data or events scheduled for today, point to possibilities of further declines.
The Australian dollar remained at its seven-month low level, driven mainly by the Kiwi’s plunge and the broad USD gains.
Today’s data: During the European day, only secondary importance indicators are due out. The German Gfk consumer confidence for October and the French consumer confidence for September are to be released.
From the US, we have the third estimate of GDP for Q2 which is expected to show a rise of +4.6% qoq SAAR, up from the second estimate of +4.2% qoq SAAR Q2. The 3rd estimate of the core personal consumption index, the Fed’s favorite inflation measure, is forecast to have remained unchanged at the Fed’s 2% target. The final University of Michigan consumer confidence sentiment for September is also coming out.
We have one speaker scheduled on Friday, ECB Governing Council member Luc Coene speaks.