JPY Fukui hesitant on rate hikes
UK RICS at 4 year high
UK Retail Sales much better than expected
US TICS the key event risk of the week, CPI also
Governor Fukui once again refused to commit to further rate hikes before the calendar year end, stating only, I would not rule out any timing. The FX market took the comment to mean that the BOJ will hold off on rate increases until Q1 of 2007 when it has had a chance to gauge the strength of US consumption during the all important Christmas season. The US is Japans number two market and remains critical to its export led plans for growth. The net effect of Fukuis comments in the FX markets was another thrashing for the yen, as USD/JPY once again popped back above 118.00 while EUR/JPY rose within 10 points of its all time high. As we noted before, the market wants to see action not talk. In fact the only reason yen was not weaker tonight was due to rumors of Central Bank diversification. Until the BOJ embraces a policy of consistent, methodical, monetary tightening and kills off the demand for the carry trade, yens only support rests with CB diversification.
Meanwhile, the topsy turvy world of UK economic releases once again produced a surprise, this time to the upside, as UK Retail sales rose markedly sharper to 0.9% from 0.3% forecast. Cable bounced on the news reaching the 1.8900 level once again on modest hopes that BoE may yet be able to raise rates another 25 basis points. However, UK consumption strength appears to be coming from the resurgent real estate market (RICS hit its highest level in 4 years) rather than from organic growth and the UK central bank may mindful of that fact. Nevertheless, tonights figures certainly challenge the recent gloomy predictions of UK slowdown and leave open the possibility of 5.25% money by early next year.
