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The Bank of Japan index fell 1.88%, leading the decline in Japanese stocks.On October 17th, CICC Research stated that, looking ahead, we maintain our view that domestic demand in the Eurozone economy will recover slowly, primarily due to the lagged impact of monetary policy easing and the gradual implementation of fiscal policies (including defense). We believe two key areas warrant observation: first, whether the EU can adopt more forceful reform measures. After all, fiscal policy is a necessary, but not sufficient, condition for breaking the EUs current economic predicament. The EUs fiscal space is fundamentally constrained by its demographics and growth prospects. Structural reforms (such as further EU integration, improved regulation, and the promotion of capital markets) are key to maximizing the effectiveness of EU fiscal spending. While discussions on reform are growing within the EU, measures currently in place remain relatively limited. Second, the extent of the consumption recovery remains uncertain. Despite a significant decline in interest rates, both the savings rate and the propensity to save in the Eurozone remain high. Whether the rise in the savings rate is temporary or structural in the new macroeconomic environment remains to be seen.Japan bought 59.3 billion yen of foreign stocks in the week ending October 10, compared with -145.27 billion yen in the previous week.Foreign investors bought 199.4 billion yen of Japanese bonds in the week ending October 10, compared with 125.84 billion yen in the previous week.Foreign investors bought 188.5 billion yen worth of Japanese stocks in the week ending October 10, with the previous value revised from 247.99 billion yen to 247.61 billion yen.

Prior to Japan's inflation data and BoJ Ueda's speech, EUR/JPY is anticipated to fall below 143.00

Daniel Rogers

Feb 23, 2023 15:00

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During the Asian trading session, the EUR/JPY is fluctuating around 143.00. The Japanese Yen bulls are attempting for the third time to drive the cross below the immediate support of 143.00, as investors anticipate that BoJ Governor nominee Kazuo Ueda will discuss an exit from the decade-long ultra-loose monetary policy managed by the Bank of Japan (BoJ).

 

The Japanese government has reiterated that the administration will pursue a change in the Bank of Japan's monetary policy under new leadership in order to increase the yen's competitiveness against other foreign exchange currencies. Therefore, BoJ Ueda's speech on Friday is expected to include additional yield-widening discussions.

 

Aside from this, Japan's National Consumer Price Index (CPI) (Jan) data will remain a focal point. The headline CPI is expected to rise to 4.5% from 4.0% in the previous release. And the core CPI, which excludes the cost of fuel and food, is anticipated to increase to 3.2% from 3.0% in the previous report. By increasing wages and consumer spending, the Japanese economy is gradually attaining a higher inflation rate.

 

According to Commerzbank economists, "patience is the name of the game." If Kuroda genuinely intended to pave the way for his successor by expanding the yield range, the BoJ's decision in early March, while Kuroda is still in charge, will be the first indication of how monetary policy will evolve. If not, we will have to wait until the end of April, when Ueda will conduct his first meeting. Even then, it is extremely unlikely that Ueda would immediately reverse monetary policy."

 

In the meantime, despite Christine Lagarde's hawkish remarks as president of the European Central Bank (ECB), the Euro is struggling to gain traction. According to ECB Lagarde, "headline inflation has begun to decelerate, but they intend to raise key rates by 50 basis points (bps) at the next policy meeting." In addition, she stated that the European Central Bank does not foresee a wage-price spiral in the Eurozone.

 

It is important to observe that the ECB has increased interest rates by 50 basis points over the past two monetary policy meetings, and a further 50 basis point increase will bring rates to 3.5%.

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