Forex Central Bank Matchup: RBNZ vs. BOJ

Told y’all the major central banks were ready to rock the forex market this week! After the FOMC reaffirmed its hawkish stance, the RBNZ and the BOJ signaled that they’re extending their stay in the dovish camp. Here’s a quick rundown of what these downbeat folks had to say.

Reserve Bank of New Zealand (RBNZ)

As expected, RBNZ Governor Graeme Wheeler and his gang of policymakers decided to keep interest rates on hold at 2.75% for the time being, acknowledging that the New Zealand economy saw some green shoots recently. However, the head honcho also cautioned that it’s too early to say if these improvements are likely to be sustained.

house inflationThis explains why Wheeler gave off a dovish vibe during his accompanying statement, reiterating that “some further reduction in the OCR seems likely” and setting of a sharp Kiwi forex selloff. He added that this depends on how upcoming data turns out, citing that the slowdown in the emerging markets and the booming Auckland housing market pose risks.

In addition, Wheeler grabbed the opportunity to jawbone the Kiwi once more, as he said that higher forex levels could dampen domestic price pressures and convince policymakers to lower interest rates again.

It’s tough to tell whether the RBNZ will pull the easing trigger or not in their December policy meeting, as New Zealand has yet to print its latest set of data (jobs, inflation, consumer spending, trade balance, dairy prices) next month. Just be on the lookout for downside surprises since these might seal the deal for another rate cut!

Bank of Japan (BOJ)

Earlier today, the BOJ made its monetary policy statement and decided to maintain their current pace of bond purchases. As in their previous meetings, BOJ member Kiuchi still dissented and voted to taper their stimulus program.

Yen bulls enjoyed a relief rally upon hearing the Japanese central bank’s decision to stay put, as most forex analysts had actually been banking on further easing or at least more dovish hints. After all, the latest economic reports from Japan had been mostly weaker than expected, particularly when it comes to consumer spending.

But yen bears wouldn’t give up so easily, spurring a huge selloff for the Japanese currency as the BOJ press conference drew near. As it turns out, the Japanese government is mulling a supplementary budget of 3 trillion JPY, which market watchers interpreted to be a form of fiscal stimulus. Hey, if the BOJ won’t ease policy, maybe the government should!

BOJ policymakers also downgraded their inflation outlook, as published in its semi-annual Outlook Report, and predicted that it will take much longer for the economy to hit its 2% CPI target. The BOJ also revised their GDP estimates lower for this year until 2017.

Summing it all up, it looks like both the RBNZ and the BOJ are holding on to their dovish feathers for now, with the former less hesitant to admit that they’re open to stepping up their easing efforts. For now, BOJ policymakers still seem stubbornly opposed to easing, although they’ve already shared a gloomier outlook. Do you think we’ll see any form of easing from either central bank before the end of the year?