01/31Â Tuesday |Â —:—Â GMT |Â JPYÂ Bank of Japan Rate Decision
The Bank of Japan meets on Tuesday against a backdrop of shifting policy expectations. Despite pledging to purchase ¥80 trillion of assets per years, the recent slowdown in short-term purchases means that the BOJ is falling behind this pace. To some, to this may conjure up concerns that, given the backdrop of a weaker Japanese Yen over the past three months, that the BOJ is tempted to step away from its more aggressive easing measures. However, given the uncertainty around US fiscal policy and rising geopolitical tensions, a premature tapering announcement would upend markets – there is a small but meaningful chance of this occurring.
Pairs to Watch:Â AUD/JPY, USD/JPY
01/31Tuesday | 09:00 GMT | EUR Eurozone Consumer Price Index (JAN A)
Eurozone inflation is set to jump again in January, as higher energy prices continue to feed through, presenting ECB President Mario Draghi with a problem. While Draghi will be happy to see inflation returning to the eurozone, higher import Prices could dampen domestic demand, just at a time when the EU is starting to see growth return. President Draghi will also have to get used to the sound of German officials suggesting that the central bank reign in its bond-buying program. The ECB’s ultra-loose monetary policy is starting to hurt German savers with the current level of inflation of 1.7%, biting into bond returns. The German yield curve is negative out to 7-years, while the 10-year Bund offers around 0.48%, still sharply lower than CPI. Analysts expect eurozone inflation to jump to 1.7% in January from 1.1% in December.
Pairs to Watch: EUR/GBP, EUR/USD
02/01 Wednesday | 18:00 GMT | USD Federal Reserve Rate Decision
It’s a non-press conference, non-staff projections meeting, so the scope for action by the Federal Reserve is limited. Regardless, interest rate markets aren’t pricing in any Fed action until June 2017 at the earliest, where there is in excess of a 70% chance of a rate hike per Fed funds futures. Ultimately, given the risks surrounding Fed policy – implicitly due to the lack of clarity over the scope of changes to fiscal policy – it seems that this FOMC rate decision’s policy statement will carry additional weight.
