BoJ takes steps to fight deflation risks, Fed concludes QE

Source: Dukascopy Bank SA
The Bank of Japan caused a sensation last week, as it unexpectedly decided to expand what was already unprecedentedly massive monetary stimulus as economic growth and inflation have not accelerated as anticipated after the sales tax hike in April. The central bank said that it would enlarge the monetary base to 80 trillion yen, up from the current 60-70 trillion yen it has targeted since last April. The announcement came as recent data showed consumer inflation falling further in September, raising doubts over the BOJ's ability to reach its 2% inflation goal.
On the side of the world, thing are completely opposite. 29 October will go down to history as the day when the Fed finally concluded the largest and most aggressive asset-buying programme in the history of the US, which had supported the world's number one economy since the onset of the financial crisis in 2008. The Fed the decision despite the recent elevated volatility in financial markets as well as global economic woes. Now market participants' curiosity turns to when the Fed will ultimately raise interest rates, with all expectations set to 2015 rate hike, as the Fed indicated the necessity to "keep the current target range for the federal funds rate a considerable time after the asset purchase programme ends". However, what is more important is how the Fed plans to get rid of abundant number of assets it has purchased.
The Reserve Bank of New Zealand also did not provide any surprise to the markets, acting in line with expectations and leaving its official cash rate at 3.5%. The central bank highlighted that the economic growth has been faster than the trend in 2014, which has helped to lower unemployment. The RBNZ reiterated its dissatisfaction with the strength of the New Zealand Dollar, citing the current level remains unjustified and unsustainable, but admitted that lower commodity prices as well as volatility in financial markets, which has recently significantly increased, have reduced some pressure on the local currency.
Although inflation in the Eurozone inched higher in October, it still remains in the ECB's danger zone. Consumer prices in the 18-nation bloc rose as an annual rate of 0.4%, according to a first estimate of October inflation by Eurostat, compared to 0.3% in September. European Central Bank chief economist Peter Praet calmed down concerns about possible deflation in the Euro area, by saying that the risk of price deflation is limited, despite the fact that the Euro zone's consumer prices fell to the lowest level on record. Nevertheless, Praet highlighted that policy makers should be vigilant.
This week's most interesting events include RBA Rate Statement, BoJ Governor Haruhiko Kuroda's speech, MOC Rate Statement as well as ECB's Press Conference.

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