Key Rate Decisions from Three Major Central Banks in a Single Week

Prepare for significant rate decisions by the Bank of Japan, the U.S. Federal Reserve, and the Bank of England. Gain valuable insights into the global financial landscape and stay informed about the outcomes of these critical decisions.

This week, the spotlight is on the Bank of Japan, Bank of England, and the U.S. Federal Reserve as they convene to discuss monetary policy and potential shifts in key interest rates. It’s crucial to delve into the macroeconomic indicators that these central banks closely monitor.

Before its decision, the Bank of Japan is closely monitoring 10-year bond yields. Recent global interest rate increases have prompted considerations of new yield curve control (YCC) measures, which could be announced at the end of the October 30-31 policy meeting. YCC is a tool used by the BOJ to maintain the 10-year Japanese government bond (JGB) yield at around 0%. In July, the BOJ raised the effective yield cap from 0.5% to 1.0% to allow long-term rates to rise further in response to higher inflation. However, the surge in U.S. bond yields is driving Japanese yields higher, challenging the BOJ’s efforts to keep domestic interest rates low, with 10-year bond yields nearing the 1% limit set in July.

The growing economic disparity between Japan and the rest of the world is exerting significant pressure on the Japanese yen and leading to imported inflation. Given the uncertainty surrounding global economic growth and labor market conditions, the BOJ may refrain from measures to move away from ultra-accommodative policies. However, if the 10-year JGB yield approaches around 0.9% early in the week, the BOJ might have to take action, as suggested by Octa analyst Kar Yong Ang.

The U.S. Federal Reserve is expected to maintain its current rates during the November meeting. A week ahead of the decision, the likelihood of the Fed raising interest rates on November 1 has diminished, partly due to the slight rise in long-term bond yields, with 10-year yields currently at 4.86%, up from 4.5% at the last policy-setting meeting. Moreover, market expectations, as indicated by the CME FedWatch Tool, currently predict a 98% chance of the rate remaining unchanged on November 1. Additionally, recent economic data indicates a general decline in inflation, though it hasn’t yet returned to the 2% target. The latest employment data signal a slowdown in wage growth, aligning with the Fed’s hopes for a potential pause, according to Octa analyst Kar Yong Ang. He added that if the U.S. Fed keeps rates steady, the U.S. dollar might exhibit short-term weakness.

In November, the Bank of England is likely to extend its rate pause. The Bank of England (BOE) will assess the latest data on wage growth and inflation before deciding on the bank rate, with the interest rate decision scheduled for November 2. In the previous month, the BOE surprised markets by keeping borrowing costs unchanged at 5.25% for the first time in nearly two years.

According to the latest Consumer Prices Index (CPI) data from the Office for National Statistics (ONS), released on October 18, the year-over-year price growth in the U.K. remained at 6.7% in September, consistent with the previous two months. On a monthly basis, there was a 0.5% increase in September, compared to 0.3% in August and a -0.4% decrease in September of the previous year.

Despite declining last month, annual inflation remained stable in September and moved further away from the peak levels recorded in October 2022 (11.1% year-on-year). Slowing inflation is a primary reason for considering an extension of the rate pause, as noted by Octa analyst Kar Yong Ang. He emphasized that if the rate remains unchanged, there could be a local weakening of the national currency.

The decisions related to monetary policy and central bank rates have a substantial impact on long-term economic regulation. Tightening monetary policy tends to strengthen the exchange rate, while loosening it tends to weaken the exchange rate. All three upcoming meetings are expected to have a soft and dovish tone. Make use of this information judiciously.

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