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Futures News, May 19th - According to foreign media reports, Japanese rubber futures rose for the second consecutive trading day on Tuesday, supported by a weaker yen and tighter supply from Thailand, the worlds leading rubber producer. The Thai Meteorological Department stated that heavy rainfall is expected in the country from May 19th to 21st, which will keep supply in producing areas tight. However, the agency also expects the weather disruptions to ease from May 22nd. Meanwhile, Tianfeng Futures in China pointed out that the capacity utilization rate of butadiene rubber plants in China has increased month-on-month, leading to a short-term increase in market supply.On May 19th, the Reserve Bank of Australia (RBA) stated in its latest meeting minutes that a third consecutive rate hike would provide it with room to monitor how households and businesses are responding to the impact of the Middle East conflict, which has led to soaring fuel prices. The minutes indicated that "while uncertainty remains, financial conditions are likely to tighten to some extent following this decision." According to the minutes, committee members discussed whether to raise rates or hold them steady, with eight of the nine members deciding there was more reason to raise rates to 4.35%. The minutes showed that the rate hike "will give the Committee room to observe developments in the Middle East conflict and how households and businesses are responding." The Committee acknowledged that policy action cannot alter the "short-run trajectory" of inflation. Money markets expect the RBA to raise rates at least once more this year, with a greater than 50% probability of two hikes. After raising rates again two weeks ago, the RBA has completely reversed all of last years accommodative policies.On May 19th, Citigroup analyst Jin-Wook Kim stated that due to strong first-quarter GDP data and continued fiscal stimulus measures, the Bank of Korea is expected to raise its 2026 GDP growth forecast from 2.0% to 2.5%-2.7% at its policy meeting on May 28th. Kim also noted that considering the impact of rising oil prices, the Bank of Korea is expected to further raise its 2026 consumer inflation forecast from 2.2% to 2.6%-2.8%. Citigroup maintains its view that the Bank of Korea will raise interest rates four times, in July and October 2026, and January and April 2027.On May 19th, Capital Economics economists stated that although the Japanese economy had accumulated solid growth momentum before the Iran war, GDP growth is expected to stagnate this quarter and next. Capital Economics economist Marcel Tiliant pointed out that first-quarter data showed both household spending and business investment increased quarter-on-quarter, with a significant increase in exports exceeding a smaller increase in imports, providing impetus for economic growth. However, despite market speculation that fiscal policy under Prime Minister Sanae Takaichi would become more accommodative, government consumption slowed quarter-on-quarter, highlighting that the supplementary budget announced last November had not had a substantial impact on government spending. Meanwhile, consumer confidence declined sharply, and the fuel price cap only temporarily curbed inflation. Tiliant added that even if the Japanese government compiles a new supplementary budget to fund gasoline subsidies, it will at best only stabilize consumer spending.Reserve Bank of Australia meeting minutes: Previously anticipated that long-term inflation expectations could get out of control.

USD/JPY Reverses Two-Day Advance Despite Positive Rates and Bullish Fed Statements

Alina Haynes

Feb 15, 2023 14:36

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Following a two-day winning run, USD/JPY returns to the bears' radar early on Wednesday as market players evaluate the Fed's hawkish decision in relation to their expectations for the Bank of Japan's (BoJ) next move. As a result, the Yen pair re-establishes its intraday low near 132.70 and has posted its first daily loss in three days, down 0.20% as of press time.

 

The Japanese government's choice of a hawkish leader for the Bank of Japan (BoJ) board appears to have pressured USD/JPY negative in recent days, despite the rise in US Treasury bond yields and the US Dollar's rebound following US inflation data.

 

The Japanese government nominated Kazuo Ueda as Governor of the Bank of Japan on Tuesday. Notably, Bloomberg published an article saying that the Bank of Japan's easy-money policy could be challenged as a result of Ueda's hawkish predisposition.

 

Even if inflation did not exceed "positive surprise" expectations, the majority of Federal Reserve (Fed) policymakers outside of the United States supported additional rate hikes. The yields on US Treasury bonds and the US Dollar were driven by the same factor.

 

The US Consumer Price Index (CPI) increased by 6.4% year-over-year, exceeding market estimates, but registering the slowest increase since 2021 and falling below 6.5% previously. Importantly, the CPI excluding food and energy, often known as the Core CPI, rose by 5.6% compared to market forecasts of 5.5% and prior readings of 5.5%.

 

Following the release of the numbers, the president of the Dallas Fed, Lorie Logan, indicated that they must be prepared to continue rate hikes for a longer period than previously planned. John Williams, president of the New York Federal Reserve Bank, reiterated this attitude, noting that the task of containing high inflation is not yet accomplished. In addition, Patrick Harker, president of the Federal Reserve Bank of Philadelphia, intimated that they are not quite finished (with raising rates), but that they are close.

 

US 10-year Treasury bond rates fluctuate around 3.75% after increasing three basis points (bps) to reestablish a six-week high, while the two-year equivalent climbed to its highest level since early November 2022 by reaching 4.62%.

 

Despite this, S&P 500 Futures track Wall Street's bearish closing to highlight the somewhat pessimistic outlook and weigh on the USD/JPY exchange rate, mostly due to the Japanese Yen's (JPY) traditional attraction for risk aversion.

 

Lack of substantial Japanese data/events makes the USD/JPY pair susceptible to US stimuli for direction. The January Retail Sales and Industrial Production figures as well as the February New York Empire State Manufacturing Index should be examined closely.


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