Rate, inflation and market signals move at three different speeds
Rate views in Japan, Norway's July inflation and Asian trading before US data place policy expectations alongside observed prices and market moves.
Economics & Markets··Midday
A debate over speed at the Bank of Japan
According to The Japan Times's account of the Bank of Japan's summary of opinions for 30-31 July, two distinct views favouring tighter policy stood out in the debate over the pace of rate increases. One of the nine board members said policy rates could rise faster than markets expect because underlying consumer-price inflation has been approaching 2 per cent and upside risks now deserve more weight. Another member said central banks elsewhere were entering a phase of rate increases and called on the Bank of Japan to demonstrate its determination to prevent inflation from overshooting through potentially larger moves. Both comments address the possible pace of policy, but the summary presents individual assessments and contains no new policy decision. The Bank of Japan left its policy rate unchanged at the July meeting. The document therefore indicates how the board's assessment of risk could shift rather than announcing a near-term increase. A path faster than markets expect remains one member's assessment of what could happen; it is neither a collective decision nor an announced timetable.[1]
Headline and underlying price pressure in Norway
Statistics Norway's July release shows the composition of observed price changes. The all-item consumer price index reached 103.8, rising 1 per cent in the month and 3 per cent over the year. The index adjusted for tax changes and excluding energy products, a measure watched by the central bank for underlying pressure, increased 0.8 per cent in the month and 2.7 per cent over the year. The spread across categories was wide. Housing, water, electricity, gas and other fuels were 4.6 per cent dearer than a year earlier, while transport rose 2.6 per cent. Insurance and financial services increased 7.9 per cent over the year, and restaurants and accommodation rose 5.7 per cent. Food and non-alcoholic beverages jumped 3.2 per cent in the month but stood only 1.1 per cent above their level a year earlier. The headline rate of 3 per cent therefore contains markedly different movements across household spending categories, with energy-related housing costs and some services carrying higher annual rates. The next consumer-price release is due on 10 September.[2]
Shares, bonds and oil before US inflation
Markets began the week trading across that distinction between data and expectation. The Associated Press reported a mixed Monday in Asia: the Nikkei 225 rose 2 per cent to 66,890.02 on technology gains, while the Kospi added 0.8 per cent to 6,305.86. The Hang Seng climbed 0.6 per cent and the S&P/ASX 200 fell 0.4 per cent. Brent crude rose 0.6 per cent to 84.04 dollars a barrel after new geopolitical headlines. On the previous Friday in New York, the S&P 500 had gained 0.6 per cent to an all-time high of 7,757.64. After US employers unexpectedly cut 23,000 jobs in July and revisions removed a combined 103,000 jobs from May and June payrolls, the 10-year Treasury yield fell to 4.64 per cent from 4.67 per cent. A forecast cited by AP has July consumer inflation, due this week, easing to 3.4 per cent from 3.5 per cent in June. That forecast is not an observed reading. The Japanese board comments describe a policy possibility, Norway supplies measured price data, and the Asian and US moves show investor positioning before another release; they are three different kinds of signal.[3]
