Investors warn Bank of Japan faces test to inflation-fighting credibility

{"text":[[{"start":10,"text":"Investors have warned that the Bank of Japan risks losing credibility in financial markets if it does not speed up its interest rate rises to contain inflation pressures, after the yen slid to a four-decade low."}],[{"start":22.52,"text":"The BoJ is expected to hold rates steady at a closely watched meeting on Friday, but investors are keen for any sign that it will accelerate rate rises thereafter, following last month’s quarter-point increase to 1 per cent. Traders in derivatives markets have priced in only one further quarter-point rise by January."}],[{"start":41.92,"text":"Japanese government bonds and the yen have both sold off this year as government spending plans fan concerns over borrowing and inflation, putting growing pressure on rate setters to respond."}],[{"start":52.3,"text":"The yen tumbled below ¥163 to the dollar this month for the first time since 1986, despite warnings from officials that they would step in to protect the currency. Ten-year bond yields have risen to their highest this century, at close to 3 per cent."}],[{"start":67,"text":"The BoJ is “already behind the curve” and is “losing some credibility”, said Laura Cooper, global investment strategist at Nuveen, the $1.4tn asset manager. “The jawboning that we have seen has [had] little sustained impact. That warrants action.”"}],[{"start":null,"text":"

"}],[{"start":83.84,"text":"The bond and currency sell-off has been exacerbated by worries over Japan’s exposure to high energy prices. Direct intervention by the BoJ in currency markets in April and May provided only a temporary respite to the yen. Faster rate rises could support the currency and also ease concerns over longer-run inflation, which is toxic to bonds, investors say."}],[{"start":105.12,"text":"“The market was already concerned that the BoJ’s [previous] hawkish words would not be followed up by action [to increase rates],” said Alex Everett, a fund manager at Aberdeen Investments. “With further yen weakening and JGB volatility, that need for action has increased.”"}],[{"start":121.4,"text":"But the BoJ faces a tricky balancing act, not wanting to push up borrowing costs for households and businesses too quickly by overreacting to a rise in inflation."}],[{"start":130.12,"text":"The most recent data showed headline inflation — which has been suppressed to a degree by energy subsidies — rising from an annual pace of 1.5 per cent in May to 1.7 per cent in June, still below the BoJ’s 2 per cent target. Core inflation rose from 1.4 per cent to 1.6 per cent."}],[{"start":149.32,"text":"On Thursday, Japan also lowered its economic growth forecast for the current fiscal year from 1.3 per cent to 0.9 per cent, saying higher oil prices were expected to weigh on demand. The forecast is based on an expectation that the yen will trade at ¥161.4 against the US dollar, weaker than its previous estimate of ¥155.2."}],[{"start":172.4,"text":"Investors worry that currency depreciation and high oil prices are putting further upward pressure on inflation. This is being amplified by fiscal policy, including a planned cut in sales tax on food and a long-term ¥370tn ($2.3tn) investment plan, heightening worries over long-term borrowing. Some are concerned that political pressure could compel the BoJ to keep interest rates artificially low."}],[{"start":198.68,"text":"However, some analysts and traders in Tokyo have argued that the BoJ could lose rather than gain credibility by responding to calls to raise rates more quickly, particularly if it appeared to be reacting to the slide in the yen."}],[{"start":212.24,"text":"Traders will focus on Friday’s post-decision press conference and how BoJ governor Kazuo Ueda answers any questions about the central bank’s political independence, and whether he strikes a hawkish tone that could shift market pricing for coming meetings."}],[{"start":225.84,"text":"“The most important hawkish signal, in our view, is whether governor Ueda will confirm at the press conference that the BOJ does not have to wait any minimum period of time before it hikes again,” said Joy Yang, head of Asian economic and strategy research at hedge fund Point72. Other potential signals would include dissenting votes in favour of a rate increase, and upward revisions to growth or inflation assessments, Yang added."}],[{"start":250.88,"text":"At present, traders view October as a likely time for the next interest rate rise, with derivatives contracts implying a 70 per cent probability."}],[{"start":259.1,"text":"“If Ueda lays out a roadmap to an October hike, it would be a hawkish message,” said Osamu Takashima, foreign exchange strategist at Citi in Tokyo. “But it may well be difficult for him to do so, given the uncertainty in markets and the simple fact that October is so far away.”"}],[{"start":282.16,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785393804_5678.mp3"}