“What if the Bank of Japan blinks?”

Until last week, yen trading reflected an expectation that while high inflation could force the Federal Reserve to tighten monetary policy further, the Bank of Japan’s January policy meeting was unlikely to change the picture with any major rhetoric or action. change of position. That helped push the yen to a five-year low against the dollar.

However, that certainty has been weakened in recent days. JPMorgan analysts posed the “what if the BOJ blinked?” question in Friday’s yen report: Strong yen trading on Thursday and Friday expressed the same speculative thinking that this week’s meeting might suggest. A major shift, or a potential easing of the BOJ’s yield curve control mechanism.

Underlying inflation is climbing in Japan, with wholesale prices rising sharply in December, the latest sign that even Japan is not immune to global trends.

Analysts at Morgan Stanley are now speculating that the Bank of Japan’s current outlook for price risks that are judged to be “biased to the downside” may now be revised to show that risks are “balanced.”

Morgan Stanley said investors should still look forward to it, with Bank of Japan Governor Haruhiko Kuroda stressing that there is still some way to go to achieve the 2 percent inflation target in a sustainable manner and that an accommodative stance should be maintained for now.

Other analysts highlighted the risk of a deterioration in Japan’s economy as the country braces for the current wave of Omicron infections, exacerbated in a population where few have received a third booster vaccination.

Analysts at Capital Economics said employee absences and possible restrictions on restaurants, bars and other businesses could limit broad-based economic growth this quarter. Leo Lewis

Will UK inflation data prompt another rate hike?

Data released this week will provide the last official signal on the strength of the UK labour market and the pace of consumer price inflation ahead of the Bank of England’s monetary policy announcement on February 3. Those figures will be assessed by committee members when they decide whether to raise rates again after raising rates to 0.25% in December.

Investec economist Sandra Horsfield expects the labor market to remain tight, with inflation only edging down to 5% after hitting a decade high of 5.1% in December. last monthAs a result, Horsfield expects rates to rise further to 0.5% at the next MPC meeting.

Food price inflation is expected to continue rising in December due to rising commodity costs at the time. However, price inflation for clothing and footwear may have fallen – mainly because their prices were higher than normal in December.

Samuel Tombs, an economist at Pantheon Macroeconomics, expects headline inflation in the UK to peak at 6% in April, when energy regulator Ofgem Raise its default energy tariff price cap. That would be the highest rate in 30 years and triple the Bank of England’s 2% target.

However, Tombs forecasts that overall interest rates will fall to around 4% by the end of the year as supply chain disruptions diminish and demand shifts from goods to services. So “the MPC doesn’t have to panic,” said Tombs, who expects two rate hikes this year, rather than the four 0.25 percentage point hikes widely expected by investors. Valentina Romee

Will ECB minutes shed light on stimulus thinking?

The ECB is due to release the minutes of its last policy meeting on Thursday, offering insights into how the debate over the future path of inflation is shaping up and whether its stimulus should be withdrawn sooner.

ECB President Christine Lagarde announced after last month’s meeting that its Governing Council hadStep by step The pace of asset purchases will moderate in 2022,” while judging that inflation “will still require monetary easing” to reach its medium-term target.

The ECB’s stance stands in stark contrast to other major central banks such as the Federal Reserve and the Bank of England, which are preparing to stop buying bonds altogether and start raising interest rates to combat inflation that has soared to multi-decade highs.

Eurozone inflation hits record high of 5% since ECB meeting December, prompting some council members to warn that a more drastic policy shift will be needed if prices continue to rise faster than their 2% target for longer than expected.

ECB executive board member Isabel Schnabel expressed those concerns a week ago, saying the planned transition from fossil fuels to a greener, low-carbon economy “constitutes a measurable upside to our baseline forecast for medium-term inflation. risk”.

Last month’s decision was opposed by some of the more “hawkish” council members, such as outgoing Bundesbank President Jens Weidmann, who argued that the ECB was over-promising given upside risks to inflation. Sustaining stimulus measures for too long.

The minutes of the meeting will provide more clarity on the extent to which this view has been widely shared. “The bottom line is that quite a few council members seem ready to change the ECB’s course, but for now they want to wait and see how the virus, inflation and the economy develops,” said ECB economist Michael Schubert. Commerzbank. Martin Arnold