When will the Bank of Japan next raise interest rates?

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The Bank of Japan is expected to refrain from raising interest rates next week, but investors expect it to outline its response to growing inflationary pressures caused by the falling yen.

UBS, Morgan Stanley, Goldman Sachs and Barclays all predict the BoJ will remain stable after a historic shift last month when it ended its negative interest rate policy and removed its cap on government bond yields Japanese at 10 years old.

Governor Kazuo Ueda signaled that future rate hikes would be gradual, saying more evidence was needed to ensure rising prices and wages were sustainable. Most analysts expect the next rate hike to occur in July or October.

But the yen weakened to a 34-year low against the dollar following the BOJ’s latest rate move, raising the risk that inflationary pressures caused by rising costs of imported goods will force the BOJ to tighten its policy at a faster pace. than he would like.

“If the impact [of the weaker yen] becomes too important to ignore, this could lead to a change in monetary policy,” Ueda said Thursday after a meeting of G20 finance ministers in Washington.

On Thursday, the IMF said Asian central banks should make policy decisions based on domestic inflation, rather than making them “overly dependent on anticipated Federal Reserve actions.”

Ueda could face “its first big challenge” if the yen continues to weaken while stock prices also fall, said Takahide Kiuchi, executive economist at Nomura Research Institute, pointing to the sharp decline in the Nikkei stock index 225 Friday.

“The BoJ’s policy decision will become extremely difficult if it has to keep an eye on both the risk of higher inflation due to the weak yen and the risk of destabilization of the economy and the financial system due to a decline in stocks,” Kiuchi said. . Kana Inagaki

Did US growth slow down in the first quarter?

The U.S. economy is expected to have grown in the first three months of this year, albeit at a slower pace than the previous two quarters, as growth remains resilient even with interest rates at their highest level in 23 years.

Data released Thursday is expected to show the U.S. economy grew 2.3% on an annualized basis, according to economists polled by Reuters, up from 3.4% in the previous quarter.

However, economists’ estimates are well below the Atlanta Fed’s GDP nowcast, which incorporates newly released data into its real-time forecast and suggests first-quarter GDP could be 2.9 percent. hundred.

That estimate has risen significantly since March’s explosive retail sales data, which sent bond yields soaring and roiled currency markets as investors bet that a strong U.S. economy would keep inflation — and thus rates — low. of interest – at a high level.

Data on personal consumption expenditures, the Fed’s preferred metric for measuring rising prices, will also be due next week. The data is expected to show that headline inflation edged up to 2.6 percent in March, year-on-year, from a rate of 2.5 percent in February.

The base figure, which excludes the volatile components of food and energy, is expected to fall from 2.8 percent to 2.7 percent. Both rates remain well above the Fed’s 2 percent target and represent a slowdown in inflation growth, driven in part by a buoyant U.S. economy.

New York Fed President John Williams told a conference Thursday that he felt no “urgency” to cut interest rates due to current levels of inflation. The market now expects a decline of one to two quarter points this year, compared to six or seven declines forecast in January. Kate Duguid

Will European economic activity continue to rebound?

Investors will be watching for signals on the strength of business activity in the UK and Europe on Tuesday, when the latest purchasing managers’ surveys are released.

Economists polled by Reuters expect S&P Global’s composite purchasing managers’ index for the euro zone – a closely watched measure of business activity – to rise to 50.7 in April from 50. 3 previously. The index climbed above 50 in March, indicating expansion, for the first time since May 2023.

Analysts expect the services sector to be buoyant while manufacturing activity will lag. “Manufacturing activity is improving but it’s still not positive,” said Tomasz Wieladek, an economist at investor T Rowe Price.

Economists also expect divergences between eurozone member states to persist. Activity is expected to remain contracted in Germany and France, the bloc’s largest economies, but increase elsewhere.

The data will be closely scrutinized by the European Central Bank, which is expected to start cutting interest rates in June as inflation approaches target and growth remains sluggish. The IMF on Tuesday lowered its forecast for growth in the euro zone this year to 0.8% in 2024, compared to 0.9% in January.

In the United Kingdom, where business activity has been more dynamic than in Europe, the pace of growth is expected to change little in April, with continued expansion in the services and manufacturing sectors.

Economists polled by Reuters forecast Britain’s composite purchasing managers’ index to come in at 52.7, down slightly from 52.8 last month. Stephanie Stacey

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