Bank of Japan (BOJ) Governor Kazuo Ueda said on Wednesday it was "still taking time" to sustainably achieve its 2% inflation target, signalling that the central bank will tread carefully in pushing up the country's still near-zero interest rates.

But he also warned of the cost of moving too slowly in raising rates, which could give speculators an excuse to trigger an unwelcome yen slide that pushes up import costs.

"When there's huge uncertainty, you usually want to proceed cautiously and gradually," Ueda said at a panel at the International Monetary Fund on Wednesday.

"But the problem here is if you proceed very, very gradually and create expectations that rates are going to stay at low levels for a very long time, this could lead to a huge build-up of speculative positions which could become problematic," he said. "We need to strike the right balance."

The BOJ ended negative rates in March and raised short-term rates to 0.25% in July on the view Japan was making progress toward sustainably achieving its 2% inflation target.

Ueda has said the bank will keep raising rates if the economy moves in line with its forecast. But he has also stressed the need to scrutinise global uncertainties, such as the US economic outlook, in timing the next rate hike.

Underlying inflation in Japan has been moving around zero before 2022, when it began to rise due to the spillover from global rises in energy and food prices, as well as a boost to wages from a tight labour market, Ueda said in the panel.

"It's still taking time for us to get to 2% in a sustainable manner," Ueda said. "We want to use this opportunity to raise inflation expectations, underlying inflation, and move to a new equilibrium with 2% inflation in a sustainable way," he said.

"That's why we maintain policy easy."

The BOJ is widely expected to keep interest rates steady at next week's policy meeting. A slim majority of economists polled by Reuters saw the BOJ forgoing a hike this year, with most expecting the bank to raise rates again by March.

When asked what keeps him awake at night, Ueda said, "What would be the right size of (policy) normalisation going forward, and how best to allocate the total size" through rate hikes across time.

He declined to elaborate, saying it was "very hard" to pin down the appropriate size of future hikes due to the difficulty of estimating Japan's neutral rate of interest.

"I have to say that we can't telegraph all our future movements ex ante," he said, referring to how the BOJ would not commit to a set timetable for raising rates. "What we can do is to explain carefully our basic monetary policy strategy."

Source: The edge markets

The Japanese Yen (JPY) is seen oscillating in range against its American counterpart during the Asian session on Thursday and consolidating the previous day's slump to the lowest level since July 31. The near-term bias, meanwhile, seems tilted in favor of the JPY bears amid the prospects of election-related uncertainty in Japan, which raises doubts over the Bank of Japan's (BoJ) ability to hike interest rates further this year. 

Moreover, the recent upswing in the US Treasury bond yields, bolstered by bets for a less aggressive policy easing by the Federal Reserve (Fed) and deficit-spending concerns after the US election, should cap gains for the lower-yielding JPY. Adding to this, the underlying strong bullish sentiment surrounding the US Dollar (USD) suggests that the path of least resistance for the USD/JPY pair remains to the upside. 

Daily Digest Market Movers: Japanese Yen remains vulnerable amid doubts over additional BoJ rate hikes in 2024

A private-sector survey released earlier this Thursday showed that business activity in Japan's manufacturing and services sectors contracted in October, pointing to weaker overall economic conditions in the country.

The Au Jibun Bank flash Manufacturing PMI declined to 49.0 in October from the 49.7 previous, marking the fourth straight month of contraction on the back of subdued local and overseas demand, and weak orders.

Adding to this, the au Jibun Bank flash services PMI contracted for the first time since June and fell to 49.3 during the reported month, while the composite PMI dropped to 49.4 in October from 52 in the prior month. 

Recent opinion polls indicate that Japan's ruling Liberal Democratic Party (LDP) could lose its majority after the upcoming general election on October 27, fueling uncertainty about the Bank of Japan's rate-hike plans.

The yield on the benchmark 10-year US government bond shot to a three-month high on Wednesday amid market conviction that the Federal Reserve will proceed with modest interest rate cuts over the next year.

The odds of former President Donald Trump winning the November 5 US presidential election fuel speculations about the launch of potentially inflation-generating tariffs that will keep the US bond yields elevated.

The US Dollar retreated a bit from its highest level since late July touched on Wednesday as bulls opt to take some profits off the table following the recent upsurge witnessed since the beginning of this month. 

The release of flash US PMI prints, along with the US bond yields, will influence the USD price dynamics later during the North American session and provide short-term impetus to the USD/JPY pair. 

Technical Outlook: USD/JPY stalls its upward trajectory near the 61.8% Fibo. level, bullish potential seems intact

From a technical perspective, Tuesday's breakout above the 150.65 confluence hurdle and the 200-day Simple Moving Average (SMA) was seen as a fresh trigger for bullish traders. The subsequent move up, however, stalls near the 61.8% Fibonacci retracement level of the July-September downfall amid a slightly overbought Relative Strength Index (RSI) on the daily chart. The said barrier is pegged near the 153.20 area and should now act as a key pivotal point, which if cleared decisively should pave the way for an extension of over a one-month-old uptrend. The USD/JPY pair might then aim to reclaim the 154.00 mark and climb further towards the 154.30 supply zone. The momentum could extend further towards the 154.75 horizontal zone en route to the 155.00 psychological mark and the July 30 swing high, around the 155.20 region.

On the flip side, any meaningful corrective slide now seems to find decent support near the 152.00 round figure. A convincing break below could drag the USD/JPY pair further towards the 151.45-151.40 intermediate support en route to the 151.00 mark, though the fall might still be seen as a buying opportunity. This should help limit the downside near the aforementioned confluence resistance breakpoint, now turned support, near the 150.65 region, which should now act as a strong base for spot prices. Sustained weakness below, however, will suggest that the upward momentum has run out of steam and shift the near-term bias in favor of bearish traders.

Source: FXSTREET

Leaders of the nations in the BRICS grouping, which accounts for 37% of global economic output, predicted its influence would grow as they met in Russia on Tuesday, outlining common projects ranging from a grain exchange to a cross-border payments system.

Russia's President Vladimir Putin, who has sought support from BRICS leaders amid his standoff with the West over the war in Ukraine, said that BRICS' average economic growth in 2024/25 would be 3.8%, compared to global growth of 3.2%-3.3%.

"The trend for the BRICS' leading role in the global economy will only strengthen," Putin said, citing population growth, urbanization, capital accumulation, and productivity growth as key factors.

The joint communique of the summit, called the Kazan Declaration, attacked unilateral sanctions imposed on some of the group's members, including Russia and Iran, saying that they harm the poorest people in targeted states.

"Therefore, we call for their elimination," the Kazan Declaration said.

Russia, the world's biggest wheat exporter, proposed the creation of a BRICS grain exchange which could later be expanded to trade other major commodities such as oil, gas and metals. The Kazan Declaration welcomed the initiative.

"BRICS countries are among the world's largest producers of grains, legumes, and oilseeds. In this regard, we proposed opening a BRICS grain exchange," Putin told the leaders.

Cross border payments

He added that the exchange "will contribute to the formation of fair and predictable price indicators for products and raw materials, considering its special role in ensuring food security".

"The implementation of this initiative will help protect national markets from negative external interference, speculation, and attempts to create an artificial food shortage," Putin said.

Kremlin spokesman Dmitry Peskov, asked why the declaration paid relatively little attention to the Ukraine conflict, told Russian radio that Ukraine was not the central issue for BRICS.

"This is an important question for Russia's agenda but it is far from being the central issue for BRICS. And to the extent that it should figure on the BRICS agenda, this was reflected."

Ukraine's Foreign Ministry said the declaration showed Russia had been unable to impose on other participants its view of the war in Ukraine.

Other leaders backed the creation of a common cross-border payments system, which would help BRICS countries trade with each other, bypassing the dollar-dominated global financial system.

Brazilian President Luiz Inacio Lula da Silva, who took part in the BRICS summit via video conference after a head injury over the weekend, said that it is time for the BRICS nations to create alternative payment methods.

He added that the group's New Development Bank (NDB) was designed as an alternative to what he called failing Bretton Woods institutions such as the International Monetary Fund (IMF).

Local currencies

India's Prime Minister Narendra Modi said that he welcomed the steps for financial integration of BRICS countries while China's President Xi Jinping urged BRICS countries to deepen financial and economic cooperation.

The Kazan Declaration called for a feasibility study on the other Russian initiatives, a BRICS Clear depositary and securities trade settlement system and a common reinsurance company.

In his speech, Putin also called for the creation of a BRICS investment platform, which will facilitate mutual investment between BRICS countries and could also be used for investment in other countries in the Global South.

Contrary to earlier statements from senior Russian officials on the need to find an alternative to the International Monetary Fund (IMF), the Kazan Declaration enhanced the role of the IMF, stressing the need for further reforms.

The declaration did not mention global dollar dominance, an issue that was often raised during the Russian presidency, nor a BRICS single currency and the use of cryptocurrencies, mentioned by Russia as a way to protect trade from Western sanctions.

"We welcome the use of local currencies in financial transactions between BRICS countries and their trading partners," the Kazan Declaration said.

Source: The edge markets

Malaysia has been recognised as one of 13 nations officially added to BRICS as a partner country, a bloc that collectively accounts for one-fifth of global trade.

According to an update from @BRICSInfo on X, the bloc officially added 13 new nations to the alliance as partner countries, though not yet as full members.

Apart from Malaysia, the other 12 nations were Algeria, Belarus, Bolivia, Cuba, Indonesia, Kazakhstan, Nigeria, Thailand, Turkey, Uganda, Uzbekistan and Vietnam.

For the record, on July 28, the Prime Minister, Datuk Seri Anwar Ibrahim, confirmed that Malaysia had submitted an application to Russia to join the BRICS intergovernmental organisation.

Russia currently chairs the bloc, which also includes Brazil, India, China and South Africa.

On June 18, Anwar confirmed Malaysia's intention to join BRICS during a discussion with Brazilian President Luiz Inacio Lula da Silva.

BRICS, originally comprising Brazil, Russia, India, and China, was established in 2009 as a cooperation platform for emerging economies, with South Africa joining in 2010.

The bloc has since expanded to include Iran, Egypt, Ethiopia, and the United Arab Emirates.

BRICS represents about 40% of the global population and accounts for a cumulative gross domestic product (GDP) of US$26.6 trillion, or 26.2% of the world’s GDP, nearly matching the economic strength of the Group of Seven (G7).

The G7 is an informal grouping of seven of the world's advanced economies, including Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, as well as the European Union.

Minister of Economy, Rafizi Ramli, is scheduled to deliver the country’s national statement at the BRICS Outreach/BRICS Plus Summit in Kazan, Russia, on Oct 24.

Source: The edge markets

West Texas Intermediate (WTI) Oil price recovers its recent losses from the previous session, trading around $71.60 per barrel during Asian trading hours on Thursday. Concerns over the Middle East conflict continue to weigh on investors, heightening fears of potential supply disruptions from the region, which is helping to support crude Oil prices.

On Wednesday, Israeli strikes hit southern Beirut, while US Secretary of State Antony Blinken toured the region, advocating for a ceasefire in both Gaza and Lebanon. Iran-backed Hezbollah intensified its attacks on Israel, deploying "precision missiles" for the first time and launching new types of drones targeting Israeli sites. Hezbollah also claimed to have struck an Israeli military factory near Tel Aviv, per Reuters.

Oil prices came under pressure due to a larger-than-expected build in US stockpiles, as imports increased and gasoline inventories unexpectedly rose. This came after refineries ramped up production following seasonal maintenance. The US Energy Information Administration (EIA) reported a crude oil stock increase of 5.474 million barrels, bringing total inventories to 426 million barrels for the week ending October 18—well above the forecasted rise of 0.7 million barrels.

Meanwhile, the US Dollar Index (DXY), which tracks the US Dollar’s (USD) value against six major currencies, surged to its highest level since late July, reaching 104.57 on Wednesday. This further weakened the demand for dollar-denominated Oil.

Signs of economic resilience and rising inflation concerns have lessened the chances of a significant rate cut by the Federal Reserve in November. Higher borrowing costs could strain the US economy, the world's largest Oil consumer, potentially dampening economic activity and reducing Oil demand.

Source: FXSTREET

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