Central Banks Diverge With BoJ, RNZD and BoE In Focus

The early morning focus of the markets has been the Bank of Japan decision and statement. As expected Mr. Kudora kept everything on hold. Most economists are expecting additional easing to come as the new consumer tax increase goes into effect next month as the BoJ will help to offset the negative effects of higher sales tax as wages are not increasing in Japan. Employers are turning a death ear to Prime Minister Abe’s pleas to increase wages. Without an increase in wages to balance the increase in consumer costs, consumer spending and consumer confidence is expected to tank. The dollar remained largely unchanged against the yen during Asian trading Tuesday, as the Bank of Japan kept its monetary policy on hold.

The central bank stuck to its bullish view on growth and prices, a fresh sign of its confidence that the economy can withstand headwinds from a sales-tax increase in April. The USDJPY continues to trade at the 103.00 level while against the euro the pair is trading at 143.00 well above their recent ranges. The inaction came just three weeks before a sales tax increase to 8% from the current 5% takes effect. BOJ officials have acknowledged that the higher levy will temporarily send the country’s growth into negative territory in the April- June quarter, before returning to moderate growth later.

Remaining in the Pacific region both the Aussie and the kiwi are back in the green after suffering on Monday after disappointing trade numbers from China weighed on the currencies. Traders in New Zealand are waiting for the Reserve Banks decisions this week, as Mr. Wheeler is expected increase interest rates in hopes of cooling the housing markets. The NZD rose to 84.81 US cents. Traders have lifted bets on a rate hike on Thursday, pricing in a 101 percent chance central bank governor Graeme Wheeler will raise the official cash rate, according to the Overnight Index Swap curve. Yesterday traders are pricing in a 98 percent chance. Wheeler has signaled interest rates will start rising this year as he attempts to head of the threat of future inflation as the local economy gathers momentum.

Trader are paying close attention to the Bank of England as it has been pulled into the London Fix mess forcing Mr. Carney to have to answer questions from Parliament. The pound eased from close to 1.68 to trade below 1.6625 this morning. Sterling weakened after Bank of England deputy governor Charlie Bean said further appreciation of the currency may dent exports and hamper the UK’s economic recovery. The BOE isn’t alone in trying to lower the value of its currency. British retail sales slowed markedly in February after a robust January as food sales stagnated, an industry survey showed on Tuesday.

The British Retail Consortium (BRC), a trade body, said the total amount spent in stores last month was 0.7 per cent higher than a year earlier, after a bumper 5.4 per cent rise in January which was the biggest jump in nearly three years.

The dollar traded virtually unchanged against the euro and yen on Monday amid fresh worries about the Japanese and Chinese economies and ongoing tensions in Ukraine. The US dollar is trading at 79.98 while the euro is trading at 1.3862