Japan and UK Economic and Monetary Policy Updates

Japan's inflation figures declined slightly, yet the Bank of Japan maintained its interest rate at 0.5%, hinting at potential future hikes while deciding to sell off ETFs and J-REITs. Meanwhile, the UK saw better-than-expected August retail sales and a significant economic partnership deal with the US during Trump's visit, though the Bank of England held its base rate due to persistent inflation concerns.

Key Points Summary

• Japan's Inflation Data

  Japan's Consumer Price Index (CPI) figures for August showed a decline from the previous month; the CPI excluding fresh food and energy registered 3.3%, down from 3.4%, and the CPI excluding fresh food settled at 2.7%, meeting expectations, down from 3.1%.

• Bank of Japan (BOJ) Monetary Policy Meeting

  The BOJ maintained its interest rate at 0.5% following its recent meeting, with Governor Ueda aligning with the majority, though two members dissented, advocating for an increase to 0.75%. Analysts predict a rate hike in October and another by January next year, citing the Governor's recent statements.

• BOJ's Asset Sales Strategy

  The BOJ resolved to gradually sell its holdings of ETFs and J-REITs in the market, aiming to prevent market instability and avoid losses, with annual sales projected at approximately 360 billion JPY in ETFs and 5 billion JPY in J-REITs.

• Japan's Economic Conditions

  Japan exhibits moderate economic growth, though some sectors show weakness, while traditional exports remain largely unchanged due to tariffs, and business investment has increased. Private consumption demonstrates resilience, but housing investment remains weak, with inflation primarily driven by rising food prices, particularly rice.

• Japanese Market Reactions

  The JPY initially strengthened against the USD following the data release but subsequently returned to its previous levels; Japan's 2-year and 10-year government bond yields rose, whereas 30-year yields experienced a sharp decline, potentially indicating investor distrust in the country's economic recovery.

• Donald Trump's Visit to the UK

  Donald Trump's second state visit to the UK during his second presidential term aimed to strengthen US-UK economic and trade relations, attract foreign direct investment to the UK, and enhance cooperation in technology, energy, and security sectors.

• US-UK 'Tech Prosperity Deal'

  During joint conferences, the UK and US signed a 'Tech Prosperity Deal' to foster cooperation in artificial intelligence, nuclear energy, and quantum technology, alongside an announcement by the British government regarding over 150 billion Euros in US company investments in the UK.

• UK Retail Sales Performance

  August's monthly and annual retail sales figures surpassed expectations across all categories (with and without fuel/energy), yet a comparison of the three months ending August against the three months ending May revealed a 0.1% decrease in sales. Sales increased in clothing, online, and non-store retailing sectors, but declined in computer/telecommunications equipment, petrol, and vehicle fuel.

• Bank of England (BOE) Monetary Policy Meeting

  The BOE maintained its base interest rate at 4%, with seven members voting to hold and two advocating for a 0.25% reduction, as inflation persistently remains significantly above the 2% target, prompting the bank to warn of ongoing sustained inflationary pressures.

• BOE's Quantitative Tightening Adjustments

  The BOE decided to reduce the pace of its government bond sales over the next 12 months, thereby slowing the decrease in its balance sheet, with a focus on selling short-to-medium term maturities while reducing the share of long-term bonds in these sales.

• UK's Broader Economic Assessment

  The UK economy shows moderate growth but weakness in specific sectors, and the labor market has somewhat loosened; the BOE notes that despite some reductions in input costs, overall cost and price pressures endure, with future policy decisions contingent on upcoming inflation, employment, and economic growth data.

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