A recent survey reveals that despite persistent inflation in Japan and a sharply depreciated yen, most economists predict the Bank of Japan will not rush into consecutive policy tightening. The next rate hike window is more likely to fall in December this year, according to a poll of 52 economists. Of those surveyed, 50% believe the most probable timing for the BOJ's next benchmark rate increase is December, while 40% expect action in October.
In contrast, market pricing is significantly more aggressive. As of the survey's conclusion, Japan's interest rate futures market indicated investors price in nearly an 80% probability of a rate hike in October. The survey also shows that 59% of economists view the government's influence over the pace of monetary policy normalisation as a major barrier to further rate increases. However, about two-thirds of respondents remain unconvinced that this adjustment means the government will not attempt to influence the BOJ in the future. Tsuyoshi Ueno, chief economist at NLI Research Institute, commented that the threshold for an early rate hike remains high due to the divergence between the BOJ and the government regarding the pace of tightening.
Separately, UBS released a report noting that gold prices have stabilised and rebounded since the beginning of this week, driving Hong Kong and mainland gold stocks up approximately 20% over three days. The bank points to a gradual recovery in gold market sentiment, primarily driven by weaker-than-expected US non-farm payroll data and softening inflation figures, with both CPI and PPI continuing their downward trends. In recent months, the market was persistently pressured by the Middle East geopolitical conflict, which raised oil prices and fuelled inflation expectations. This intensified investor concerns about "higher rates for longer," becoming a major headwind for gold prices. UBS gold strategy analyst Joni Teves expects gold prices to rise further from current levels by the end of this year. In his view, portfolio diversification remains a key driver of gold demand among a broader investor base. Macroeconomic uncertainty is still elevated, and he believes investors are seeking to build portfolios that can remain resilient across multiple scenarios. This helps explain why demand for gold remains robust, even when the opportunity cost of holding it is high.
Data to watch today includes the UK June seasonally adjusted monthly retail sales, Germany August Gfk consumer confidence index, Eurozone July SPGI manufacturing PMI preliminary, UK July SPGI services PMI preliminary, US July SPGI manufacturing PMI preliminary, and US June seasonally adjusted annualised new home sales.
Gold/USD
Gold experienced a significant decline yesterday, breaking below the 4100 mark and is currently trading around 4030. In addition to profit-taking exerting some pressure, the revived expectation of a Federal Reserve rate hike is also a key factor weighing on gold. Furthermore, rising crude oil prices have sparked inflation concerns, which continues to pressure gold. Focus today will be on resistance near 4100, with support seen around 3950.
AUD/USD
The Australian dollar traded lower yesterday, ending the session with a slight loss and currently trading around 0.6970. Profit-taking put some pressure on the currency, while a stronger US dollar, supported by factors including heightened Fed rate hike expectations, also contributed to the decline. However, positive Australian economic data released during the session rekindled expectations of a Reserve Bank of Australia rate hike, limiting the downside. Focus today will be on resistance near 0.7050, with support seen around 0.6900.
USD/JPY
The USD/JPY pair moved higher yesterday, challenging the 164.00 level and is now trading around 163.80. A stronger US dollar, driven by revived Fed rate hike expectations and safe-haven demand, was the main catalyst for the pair's rise. Additionally, expectations that the Bank of Japan is not in a hurry to tighten monetary policy provided further support. However, concerns about potential Japanese intervention in the currency market limited the upside. Focus today will be on resistance near 164.50, with support seen around 163.00.
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