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BOJ leaves policy rate unchanged, considers reducing bond purchases

The Bank of Japan (BOJ) kept its range for short-term rates unchanged, but said it plans to reduce its bond purchases in the future. The cautious stance on tapering off bond purchases left traders wondering about the central bank’s commitment to further rate cuts later this year. Asian stock markets were trading mixed on Friday, after US tech stocks soared on to new all-time highs the day before.

Shane Strowmatt, LGT
Temps de lecture
5 minutes
Bank of Japan
© Shutterstock

The BOJ kept its range for short-term rates between zero and 0.1%. The central bank will continue purchasing about JPY 6 trillion of Japanese government bonds per month but will present a plan in July for how it intends to taper off those purchases to reduce its balance sheet. In March, the central bank ended its negative interest rate policy, which had been in place since 2016. At the time, it cited ongoing wage negotiations with unions seeking strong wage gains, which in turn the central bank hoped would support sustained inflation. The Japanese yen fell versus the dollar after Friday’s BOJ announcement. In Tokyo, the Nikkei 225 was trading 0.4% higher.

Elsewhere in the Asia-Pacific region, stock markets were mixed. In Australia, the S&P/ASX 200 was trading 0.3% lower, while South Korea’s Kospi was up 0.3%. Hong Kong's Hang Seng Index dropped 0.7%, while the CSI 300 was trading 0.3% higher.

US producer prices drop

The Producer Price Index for the US fell on a seasonally adjusted basis by 0.2% in May when compared with the previous month. Economists had expected a slight increase. On an annual basis, producer prices were up 2.2%. Producer prices are closely watched because they provide insight into possible changes in future consumer prices as companies pass along varying costs to consumers. The data comes just one day after US consumer prices came in flat on the month, setting of a rally in risk assets and pressuring Treasury yields.

Weekly initial jobless claims data released Thursday added to signs that the US economy was cooling down. The number of first-time applicants for unemployment increased by 13,000 last week to 242,000. Cracks in the labour market signal to market participants that the Fed may be able to lower rates earlier than previous anticipated. On Thursday, tech stocks continued to press onward into new territory with the Nasdaq-100 reaching yet another all-time high. The tech-heavy index gained 0.6% on Thursday to close at 19,575.72 points. The S&P 500 finished the day 0.2% higher, while the Dow Jones Industrial lost 0.2%. In individual stocks, Tesla shareholders voted to approve CEO Elon Musk’s pay package from 2018 worth USD 56 billion. Tesla stock ended Thursday’s session 3% higher.

Swiss producer and import prices fall

Another sign of inflation slowing was coming out of Switzerland, where the Producer and Import Price Index fell by 0.3% in May when compared with the previous month. Lower prices for pharmaceuticals and petroleum products were driving the index down. The price for the full range of products covered in the index was up 1.8% lower than a year ago. In contract to producer prices, the price of imported goods increased during the month. The SMI lost 0.7% on Thursday.

Corporate and macroeconomic calendars

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: French Harmonized Index of Consumer Prices, UK consumer inflation expectations, University of Michigan Consumer Sentiment Index, European Central Bank President Christine Lagarde speaks.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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