Japan’s Financial Authorities To Meet, Yen Strengthens

The Japanese Finance Ministry announced that ministry officials would meet with Bank of Japan (BoJ) and Financial Services Agency members to discuss international financial markets. Media sources suggest that the post-meeting briefing could include some warnings regarding speculative moves against the Japanese yen.

It should be noted that the Japanese currency strengthened as the upcoming meeting made the financial news headlines. The Japanese yen has hovered around a six-month low since Friday.

The BoJ’s Governor Kazuo Ueda reiterated that the central bank “will patiently maintain the easy monetary policy as there is still a distance to go to stable 2% inflation.” Ueda also noted that the BoJ would move forward with its bond-buying operations.

IMF: US economy to grow by 1.7% in 2023

A report published by the IMF said that the US economy is projected to grow by 1.7% in 2023 and by 1.0% in 2024. The IMF’s economists suggested that, despite the anticipated consumer price inflation drop during this year, inflation will remain above the Fed’s 2% target until next year.

IMF Managing Director Kristalina Georgieva said: “Inflation remains stubbornly high, PCE is telling us that the job is not quite yet done…Frankly, we need to continue to follow the data and see how much it would take to bring inflation to target.” The IMF’s head warned that “unrealized losses from holdings of long duration securities would increase in both banks and nonbanks and the cost of new financing for both households and corporates could become unmanageable. Such a tightening of financial conditions could trigger an increase in bankruptcies [and] worsen credit quality.”

Credit Suisse updates its BoE rate forecast

As the UK’s inflation rose unexpectedly during the previous month, economists at Credit Suisse reviewed and updated their Bank of England (BoE) terminal rate forecast. As they suggested in a note to investors, “We have increased our BoE terminal rate forecast from 4.75% to 5.0%. We now expect two more 25 bps hikes from the BoE (in June and August), compared with one before, and no rate cuts in 2023. This is driven by the upside surprise in UK inflation.”

Credit Suisse analysts also said that “But we expect the BoE to hike rates to less than market pricing (which has peak rates at 5.4%). Our expectation is for headline inflation to continue to fall and for some of the strength in core inflation to reverse in the coming prints. We also expect a mild recession that should allow the BoE to pause in August.”

Bank of America: Fed rate hike in June likely a close call

Analysts at the Bank of America suggested that a June rate hike could be a close call for the Fed. The BoA note said that “three conditions need to be met for a Fed rate hike. First would be the release of strong economic data, the second would be strong economic data reports, and, third, subdued regional bank stress.”

According to its market analysts, inflation remains too persistent for the Fed to commit to a prolonged pause in rate increases, adding that if the US central bank decides to forego a rate increase in June, the possibility of a July hike would still be on the table.

Nomura's Outlook for ECB and BoE Rates

Nomura’s economists suggested in a report that the European Central Bank (ECB) and the BoE governing boards have become more data-dependent in the last few months when it comes to adjusting their monetary policies.

They note: “Weaker data and recent less hawkish commentary led to the ECB pivoting in May, and we expect two more 25 bps hikes for a peak of 3.75% by July. Following the latest inflation print, we have changed our call and now see the BoE raising rates by 25 bps at each of the next three meetings. We thus forecast peak rates at 3.75% for the ECB and 5.25% for the BoE. We assume rate cuts from both central banks a little over a year after the last hike (settling at 2.75% for the ECB and 4% for the BoE).”

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