BoJ conducts unlimited fixed-rate purchase operation

Emily Nicol

BoJ conducts unlimited fixed-rate purchase operation to defend its yield curve control framework; data-flow set to bring soft retail numbers and a relatively subdued Tankan at the end of the week, while discussions on fiscal stimulus package to continue
After BoJ Governor Kuroda last week insisted that the BoJ would not change policy in the face of cost-push inflation and the weaker yen, and with 10Y JGB yields today approaching 25bps – the upper limit of its yield curve control target yield – the BoJ stepped in to defend its framework offering an unlimited fixed-rate purchase operation for the second time in six weeks – contrasting with no bids at the first operation (14 February), take-up of the BoJ’s offer this time was ¥64.5bn. Japan’s data-flow for the week gets underway tonight with the February labour market report, which is expected to see the unemployment rate steady at 2.8% last month, having ticked higher in January as economic activity weakened. Retail sales figures due Wednesday are expected to report a third successive monthly drop in February as the omicron wave continued to take its toll, particularly early in the month. Thursday will bring preliminary industrial production data, which are expected to rise for the first month in three, albeit only modestly in light of ongoing supply-side constraints. Most notably, perhaps, Friday will bring the BoJ’s latest Tankan, which is likely underscore the picture of a subdued first quarter, and relatively tepid outlook in the wake of the shock from Ukraine and continued pandemic-related weakness in the region. Indeed, with GDP in Q1 now likely to have contracted, government preparations for a new package of budgetary support measures, to alleviate the pain of higher energy and food prices on consumers, will continue this week, with Prime Minister Kishida today suggesting that the government’s subsidy for oil wholesalers would be extended to end-April.

Euro area focus on flash inflation, with a new record high well above the ECB’s forecast path likely
The data highlight of the coming week will be the preliminary March inflation figures from Germany and Spain (Wednesday), France and Italy (Thursday), and concluding with the aggregate euro area data on Friday. We expect higher energy prices to continue to exert upward pressure on the euro area headline HICP rate, which we forecast to rise 0.9ppt to a new record high of 6.8%Y/Y this month, firmly above the ECB’s revised baseline scenario of inflation which suggested a peaking of 5.4%Y/Y in Q1 and Q2. We also expect rising goods and services price inflation to push the core CPI rate up a further 0.7ppt to 3.4%Y/Y. Among other data due, the latest jobless figures (Thursday) are likely to suggest a further tightening in the labour market, with the euro area unemployment rate expected to fall for the ninth month out of the past ten in February to a series low of 6.7%. However, further economic sentiment survey results due this week will further suggest a notable deterioration in the euro area’s economic outlook. In particular, like Friday’s downbeat ifo and ISTAT survey results from Germany and Italy, the European Commission’s business and consumer survey results (Wednesday) will likely report a drop in the headline ESI of about 5pts in March to 109.0, which would be its lowest level for a year. Finally, in terms of ECB-speak, various Governing Council members are in action this week, including President Lagarde (Wednesday) and Chief Economist Lane (Thursday).

A less eventful UK data calendar kicks off with bank lending figures tomorrow
The UK’s economic data calendar offers an update on bank lending in February (tomorrow), with consumer credit likely to have increased as relaxed Covid restrictions, a return to offices and pent-up demand for travel and hospitality provided a boost to spending on services. March sentiment surveys due include the Lloyds business barometer (Thursday) and final manufacturing PMIs (Friday). The flash output PMI fell 4.3pts to 52.6, a five-month low, while new orders growth was the softest in more than a year as concerns about the Ukraine conflict weighed. Nationwide house price data and the BRC shop price index for March will also be published (Wednesday). The final release of Q4 GDP (Thursday) should confirm growth of 1.0%Q/Q and 7.5%Y/Y in Q4. In addition, BoE Governor Bailey will speak on macroeconomic and financial stability in changing times (today), while Deputy Governor Broadbent will speak at NIESR event to mark the 25th anniversary of the establishment of the MPC (Wednesday).

Labour market the highlight of a busy week for US data
A busy week for US data will culminate with the March labour market (Friday). Daiwa America’s Mike Moran forecasts another strong report, with nonfarm payrolls up another 500k (following the upside surprise of 678k in February), the unemployment rate down another 0.1ppt to 3.7%, and wage growth rebounding too. The dataflow gets underway this afternoon with February’s preliminary goods trade report, which Mike expects only a slight narrowing ($2.5bn) from January’s record deficit ($107.6bn). Inventory data for the same month are also due today. Looking further ahead, tomorrow brings the February JOLTS job figures, house price data and the Conference Board’s consumer survey. Wednesday brings final Q4 GDP data, expected to align closely with the current estimate of growth of 7.0%Q/Q annualised. And Thursday will bring February personal income, spending and the associated deflators – Mike expects strong employment growth to feed through to higher income, although with the deflators set to have risen notably further spending might well have been more tepid last month. Finally, the manufacturing ISM is also out on Friday. 

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