Bank of Japan Rate Hike May Not Come Until Year End at the Earliest

Today?s sell-off in the Yen crosses is nothing more than a correction of yesterday?s rally. Carry trades are stuck in range as the recent recoveries have been rather baseless.

Japanese economic data remains weak as retail sales continue to drop in the month of July. Tonight, we have additional data including consumer prices, unemployment, overall household spending, PMI, and industrial production. Although the labor market will remain tight, it will be sometime before Japan is able to escape deflation. Last week, Bank of Japan Governor Fukui said that the central bank still plans on increasing interest rates, but comments from BoJ member Mizuno this morning suggest that a rate hike may not come until the end of the year at the earliest because Mizuno said that a Fed rate cut could change his stance. The newly installed Cabinet also does not seem to favor a hike. Finance Minister Nukaga said that Japan has yet top overcome deflation and as a result, he wants the BoJ to make policy consistent with the current economy.