BoJ Surprises, Leaving Monetary Policy Unchanged

Daily Analysis - 28/04/2016

Bank of Japan Surprises - Leaves Policy Unchanged Today

The yen strengthened sharply in the early part of the Asian session today as the Bank of Japan left monetary policy unchanged. Interest rates stood at -0.10% while the QQE remained unchanged at 80 trillion yen. The Bank of Japan delayed its inflation forecasts from H1 2017 to “within 2017”. The strong moves in the yen came about as speculation over the last week saw many expecting the central bank to decisively increase its easingat this meeting.

UK GDP Expanded at a Slower Pace in Q1, 2016

While services sector continued to underpin the UK economy, a slump in manufacturing and construction saw the UK's economy only growing at a pace of 0.40% in the first three months of the year. This comes following the final quarter of 2015, which showed the UK's economy expanding at a pace of 0.60%. The slow pace of growth was marked by a 0.60% increase in the services sector while production fell 0.40%, construction output fell 0.90% and agriculture slipped by 0.10%. The UK's GDP was 2.10% higher in the first quarter compared with the same period a year ago. “Brexit” still remains a big concern in the UK and that has led to slower investments in the economy. Preliminary data for the second quarter also shows that it is starting off on a weak note.

Federal Reserve Leaves Benchmark Rate Unchanged in April

In a widely expected move, the Federal Reserve left the benchmark interest rate unchanged at 0.25% - 0.50%. The monetary policy statement released Wednesday showed that the monetary policy committee acknowledged that the labor market had improved despite a broader slowdown in the US economy. The FOMC statement also saw the Fed removing the dovish language seen in the January statement indicating that global markets posed a risk to the US economy. This has stoked expectations that the Fed is most likely to move at its meeting in June, which will also be followed by a press conference. At April's meeting there was only one dissenter, Kansas City Fed president, Esther George, who felt it was appropriate to raise the Fed funds rate by 25bps.

RBNZ Holds Interest Rate Steady at 2.25%

In the overnight session, the Reserve Bank of New Zealand's monetary policy saw the central bank holding interest rate at 2.25%, unchanged from its previous meeting. But the central bank has kept the rate cut option on the table noting that further policy easing would be required to ensure that future average inflation would move closer to the central bank's target. The RBNZ expressed concerns on fading inflation expectations and expects a near term decline although long term expectations were well anchored to the bank's 2.0% target range. The policy decision in April now pushes off any possible rate changes until the RBNZ's next meetings in June and August where a consensus is building for at least another 25bps rate cut.

US Preliminary GDP: Analysts Expecting a 0.70% Increase

The markets will be focusing today on the initial estimates for the first quarter US GDP due to be published at 12:30 GMT by the US Bureau of Economic Analysis. Analysts are expecting GDP to grow by 0.70% after the US economy grew at a pace of 1.40% in the fourth quarter of 2015. Weak manufacturing and production, alongside global headwinds is expected to see the US economy rise at a subdued pace of growth. However, some GDP models such as the one from the Atlanta Fed forecast that the first quarter expansion in the US was a lot softer, pointing to a 0.40% increase in GDP. The first quarter of the year is seasonally the weakest for the US economy.