Policy Spotlight on RBA and BOJ’s Ueda

By Jamie McGeever

Overview of the Upcoming Day in Asian Markets

A sense of caution may permeate Asian stock markets on Tuesday, following a rather inconclusive session in the U.S. the previous day. Investors are also preparing for an interest rate decision from Australia and comments from Bank of Japan Governor Kazuo Ueda.

Despite this cautious atmosphere, the modest gains recorded on Wall Street kept the indices within 0.3% of last week’s record high, with the Dow reaching a new peak of 42,190 points. The positive sentiment stemming from last week’s Federal Reserve actions still appears to linger.

On Monday, the bullish outlook for riskier assets may have been reinforced by Chicago Fed President Austan Goolsbee’s remarks. He noted that the Fed’s policy rate remains "hundreds" of basis points above the neutral level, suggesting that more rate cuts could be on the horizon in the coming year. This commentary follows unexpectedly dovish statements from Fed Governor Christopher Waller, who remarked that inflation is easing more rapidly than he had anticipated, indicating that August inflation could be quite low.

However, the delicate balance between substantial rate cuts encouraging risk-taking versus concerns about the reasons behind such aggressive policy easing remains a focal point. Economic indicators and labor market data leading up to the Fed’s next meeting will be scrutinized closely as a result.

Next on the agenda is the Reserve Bank of Australia’s policy decision and guidance. With inflation exceeding the central bank’s target range of 2%-3% and a robust job market, the likelihood of a rate cut remains slim. All 43 economists surveyed expect the RBA to maintain its cash rate at 4.35%, with 40 anticipating no rate changes for the remainder of the year.

Swaps markets are pricing in approximately a two-in-three chance of a 25 basis point rate cut by year-end, with expectations of a total easing of 100 basis points next year—much less than what is forecasted by other major central banks, aside from the Bank of Japan and the Swiss National Bank.

The Bank of Japan is currently the only major bank in the process of raising rates, and investors will be looking for insights into the pace and extent of tightening from Governor Kazuo Ueda’s speech on Tuesday. The BOJ decided to keep rates unchanged during its last meeting and has indicated no urgency to raise them further.

In China, the People’s Bank injected 14-day liquidity into the financial system for the first time in months at a lower rate than previously offered. However, investors will need substantial reassurance that China’s stimulus efforts will be sufficient to combat deflation and spur economic growth.

Key Developments to Watch in Asian Markets on Tuesday:

• Australia interest rate decision
• Remarks from BOJ Governor Kazuo Ueda
• Japan flash PMIs for September