[News] Central Bank Meetings to Watch: Key Focuses and Market Expectations in the U.S., UK and Japan

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As the Bank of Japan (BoJ) will hold its monetary policy meeting on Wednesday, July 31, the market is primarily focused on whether BoJ will raise interest rates again after its last hike in March. The hawkish expectation stems from the continuous depreciation of the yen, which has led to a decline in Japanese purchasing power and weak consumer spending. Under such pressure, the BoJ might be compelled to raise rates.

On the dovish side, Japan only ended its negative interest rate policy in March, and the June CPI data did not indicate worsening inflation, suggesting BoJ may maintain a cautious stance until the end of the year. Additionally, the bond tapering plan is a key market focus. It is widely expected that BoJ will reduce its quarterly bond purchases by 0.5 to 1 trillion yen, aiming to cut 3 to 4 trillion yen over the next two years. This would mark the first step towards quantitative tightening, avoiding a rapid rise in yields that could lead to a vicious cycle of debt repayment and interest burden for BoJ.

 

Next is the Federal Reserve’s FOMC meeting in the United States. With continuous progress in reducing inflation, the core PCE, which is the Fed’s most watched indicator, has decreased from 4.3% in June last year to 2.6%. Meanwhile, the labor market continues to cool, with the unemployment rate rising from 3.7% at the end of last year to 4.1% in June. Despite this, consumer spending remains robust as indicated by the Q2 GDP data, and it is expected to moderate in the second half of the year. As a result,  market concerns about an economic recession have decreased, and it is now anticipated that the Fed will hold off on any rate cuts until September. Future monetary policy will depend not only on inflation but also on the labor market, which remains a key focus for the Fed.

 

Finally, the Bank of England’s (BoE) monetary policy meeting will take place on August 1. Although June’s CPI remained at the BoE’s inflation target of 2%, and total wages over the past three months to May continued to slow, with the unemployment rate stable at 4.4%, BoE is still concerned about persistent high services inflation, which stayed at 5.7% in June. This ongoing inflation pressure adds uncertainty to market expectations regarding a potential rate cut by the BoE.

 

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