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April 28, 2016

Fed sees US economic outlook more stable, BoJ leaves QE volume unchanged

Fed sees US economic outlook more stable, BoJ leaves QE volume unchanged

The US Federal Reserve has remained its key monetary benchmark in the range of 0.25-0.50 percent, but made clear that it is confident in the prospects for the US economy, leaving the door open to raise borrowing costs in June.
The Federal Open Market Committee said that the situation on the labor market continues to improve, despite the recent economic slowdown, and that it keeps a close eye on the inflation.
The watchdog added that the situation in the global economy remains on its radar, but didn’t say it presents a risk for United States.

“The Committee continues to closely monitor the indicators of inflation and the dynamics of the world economy and finance”, – was said in the report on results of the Fed’s two-day meeting.
Federal Reserve for the first time in nearly a decade lifted the rate in December last year. Now the regulator but expected number of hikes from four to two, one of them is certainly expected in December.

Yesterday’s Fed statement is the third in a row in which the regulator is not talking about the balance of risks to the economy.
However, the Fed noted that despite a slight slowdown in household spending, their real income is increasing by “solid pace”, and consumer sentiment stays at a high level.
Inflation in the US has accelerated somewhat recently, but the Fed said that it will remain low in the short term, partly due to the recent decline in energy prices. However, the regulator added that it was confident that inflation will accelerate to a guideline of 2 percent over the medium term.

The Fed also reiterated that the situation in the US economy will develop in a way that ensures “a gradual increase” of the interest rate.

The yen has strengthened against the dollar and the euro on Thursday after Kuroda’s team left monetary policy unchanged, dissipating speculations that the watchdog can expand the already large-scale easing program.
The Japanese central bank kept the rate at minus 0.1 per cent, despite the challenges of the global economy, strong yen and weak consumption.
US dollar is down 2.84 percent to 108.28 yen. USD/JPY rose to 111.80 in the last week on speculations that the Bank of Japan is considering the spread of its policy of negative interest rates on loans to banks.

Shares on the Tokyo Stock Exchange fell sharply, Nikkei 225 fell to 3.61%, after the Bank of Japan decided not to change interest rates despite the fact that its inflation target of about 2% faces will be quite hard to reach.

The market expected the BoJ would yield to temptation to extend QE after Bloomberg had reported that the results of Thursday meeting should be extension of the policy of negative interest rates, introduced in January.

Household spending in Japan fell 5.3% in March year on year, missing expectations of 4.2% decline. The nationwide core consumer price index in March fell 0.3% year on year versus a projected drop of 0.2% and the unemployment rate dipped to 3.2% despite the estimate of 3.3% .
The volume of industrial production in Japan in March rose by 3.6% on monthly basis, while expected to grow by 2.9%, while the volume of retail sales fell by 1.1% year on year, although it was expected to drop to 1.5% .



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