Harvest Global Markets :

The inflation data from Japan made for a hectic start to the day on the economic calendar. Data on inflation were hotter than anticipated, increasing the likelihood that the Bank of Japan may modify its ultra-loose policy. Overnight, word spread that the Bank of Japan intended to modify the Yield Curve Control (YCC) policy and occasionally permit 10-year government bond yields to exceed a 0.5% cap.

However, the Bank of Japan let down investors looking for a change. In line with market forecasts, the Bank of Japan maintained interest rates at -0.10% this morning. The BoJ did not alter the Yield Curve Control Policy, which limits the yields on 10-year government bonds to a range of +/- 0.50%.

The USD/JPY fell to a pre-BoJ low of 138.708 before climbing to a pre-BoJ high of 139.590 before the BoJ’s announcement of its monetary policy. However, in response to the Bank of Japan’s status quo, the USD/JPY dropped to a low of 138.471 following the decision before rising to a high of 141.073 following the BoJ. The USD/JPY increased to 139.747 this morning, up 0.23%.

Looking ahead to the US session, the economic calendar is once again full. The statistics to be tracked are the US Core PCE Price Index and personal spending figures. For a rate hike in September, Fed Chair Powell left the door open. Personal spending and a core PCE price index that are hotter than anticipated would support a more hawkish Fed policy outlook.

The Fed’s chosen inflation gauge is the Core PCE Price Index. Sub-4% would probably put an end to the Fed doves. Personal spending must be taken into account, though, as an increase in spending is likely to cause consumer price inflation through demand.