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On April 28th, the yen strengthened after the Bank of Japan raised its inflation forecast and three committee members supported a rate hike, appreciating as much as 0.3% to 158.97 against the dollar. The number of committee members supporting a rate hike rose to three, up from one at the March meeting, indicating a strengthening hawkish stance within the committee. Uncertainty surrounding the war with Iran and the resulting surge in energy prices are casting a shadow over the economic outlook and becoming a greater concern as the Bank of Japan weighs inflation risks against growth. Masahiko Loo, senior fixed income strategist at State Street Global Advisors, said, "The Bank of Japans hawkish stance should be seen as a signal of both currency defense and inflation control, indicating that the authorities tolerance for further yen weakness is decreasing given the resilience of domestic inflation and growth." The Bank of Japan also raised its core inflation forecast for the current fiscal year to 2.8% and lowered its economic growth forecast to 0.5%. Market focus will shift to Governor Kazuo Uedas press conference for clues on when policymakers might further tighten policy. A hawkish signal from Ueda could push the yen further away from the 160 level. Overnight index swaps indicate that the market expects a 61% probability of a rate hike in June and has fully priced in the expectation of a 25 basis point rate hike in September.The yield on Japans 20-year government bonds fell 2.0 basis points to 3.310% during the day. The yield on Japans 30-year government bonds fell 2.0 basis points to 3.655% during the day.On April 28th, HSBCs chief Asia economist, Fred Neumann, stated that the Bank of Japans interest rate decision was a close call. While maintaining the current rate, the three dissenting votes highlighted the tension faced by monetary policy officials. Japanese monetary policy officials are not the only group facing a dilemma. How to deal with the simultaneous inflationary and growth-damaging effects of energy price shocks is a common challenge for monetary authorities worldwide. Nevertheless, the message conveyed by the Bank of Japan today is that it prefers to tighten policy sooner rather than later. Even though soaring energy costs will inevitably impact economic growth, the Bank of Japan will not wait long before tightening policy again.Bank of Japan: The trade policies announced to date have altered the trend of globalization to some extent.Bank of Japan: Rising crude oil prices may be more easily transmitted to the prices of various goods and services than in the past.

Oil Quiet As Price Cap Suggestion Assists in Relieving Supply Concerns

Skylar Williams

Nov 25, 2022 14:48

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Benchmark Brent oil declined on Thursday, while West Texas Intermediate (WTI) crude remained unchanged, hovering at two-month lows due to uncertainty about the degree to which a proposed G7 restriction on the price of Russian oil would limit supply.


A larger-than-anticipated rise in gasoline inventories in the United States and an expansion of COVID-19 limitations in China also knocked on oil prices.


At 15.15 p.m. ET (2015 GMT), Brent oil prices decreased 29 cents, or 0.3%, to $85.12 per barrel, while U.S. WTI crude futures decreased 2 cents, to $77.96 per barrel.


Due to the Thanksgiving break in the United States, trade volumes were quite low.


The announcement on Wednesday that the expected price ceiling for Russian oil may surpass the current market level triggered a decrease of about 3 percent for both benchmarks.


European Union nations remained divided over what level to cap Russian oil prices to limit Moscow's ability to pay for its battle in Ukraine without causing a global oil supply shock; if positions converge on Friday, more conversations are possible.


A European official claimed that the G7 is discussing a cap of $65-$70 per barrel for Russian oil transported by sea, but European Union member states have not yet reached an agreement on a price.


A higher price ceiling might encourage Russia to continue selling its oil, decreasing the possibility of a global oil supply shortage.


According to two sources, several Indian refiners are discounting Russian Urals crude by between $25 and $35 per barrel compared to the worldwide benchmark Brent oil. Urals is Russia's principal crude export.


Despite the obstacles, Bart Melek, global head of commodities market strategy at TD Securities, is rather optimistic about oil. "The Russian price ceiling is another aspect that contributed to the current price fall," he stated.


The Energy Information Administration (EIA) said on Wednesday that gasoline and distillate inventories in the United States climbed substantially during the previous week. [EIA/S]


In contrast, oil stockpiles decreased by 3.7 million barrels to 431.7 million barrels in the week ending November 18, despite a Reuters survey predicting a reduction of 1.1 million barrels.


China reported the highest daily number of COVID-19 cases since the outbreak began over three years ago on Wednesday. Local officials intensified measures to remove the breakouts, raising investor anxiety over the economy and demand for fuel.

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