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FX Week Ahead: BoJ meeting and GDP data

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After a rather busy week that saw a lot of central bank meetings lined up, the week ahead turns into a slow one leading up to the holiday season. Still, important economic events during the week include the central bank meeting from the Bank of Japan on Thursday.

No changes are expected from the BoJ’s meeting this week which comes after the central bank broadly left its monetary policy unchanged for the most part this year. On the economic front, GDP data will be the main theme as reports from various G7 economies will be released.

The final GDP report from U.S. is due on Thursday with data expected to confirm that the U.S. economy expanded at a pace of 3.3% on the quarter ending September. New Zealand will also be reporting its quarterly GDP figures including the UK. The week winds off with the core durable goods orders data from the U.S.

Here’s a quick recap into this week’s economic calendar for the currency markets.

GDP data dominates the week ahead: U.S., New Zealand, UK, Canada

GDP reports across the various G7 economies remain the main theme for the week ahead and one that could potentially impact the markets.

The U.S. final GDP for the third quarter will be released on Thursday, December 21st. According to the economists polled, no changes are expected as the U.S. third quarter GDP is expected to be confirmed at 3.3%. This was the revised GDP figure during the second GDP estimates and higher from 3.0% increase seen in the preliminary GDP report.

On Friday, December 22nd, the UK’s final revised GDP figures will be coming out. Forecasts point to a slight downside revision to 0.3% for the quarter ending September. This is somewhat lower compared to the second estimates which showed a 0.4% increase. If confirmed, a GDP rate of 0.3% would see the UK’s economy expanding at the same as in the second quarter. On a year over year basis, the UK’s GDP is expected to remain unchanged at 1.5%

Both Canada and New Zealand will be releasing the GDP numbers as well. For New Zealand the GDP report will cover the third quarter. Estimates point to a slower pace of GDP expansion at 0.6% on the quarter. This is expected to put the annual GDP growth rate at 2.4%, slightly down from 2.5% previously.

Bank of Japan expected to hold fire

The Bank of Japan’s monetary policy meeting which is scheduled for this Thursday is expected to be a non-event. The central bank is forecast to keep interest rates unchanged at -0.10% while leaving its QQE program untouched. The BoJ has been on the sidelines for the most part this year.

Part of this comes from the fact that inflation has remained sluggish amid the central bank’s efforts to stoke inflation. Earlier in the year, the BoJ switched to yield control in order to keep the yields on the short term maturing bonds near zero.

The central bank, which released its comprehensive assessment in September this year, spoke about the side effects of aggressive monetary policy easing. This was evident as the minutes showed that some members were concerned about further easing.

Although the central bank is expected to maintain the current monetary policy, some market watchers expect that the BoJ could raise the long term interest rate target. This comes amid a somewhat improving GDP data and a tightening labor market.

However, with Japan’s inflation rate still near zero and far from the 2% inflation target rate, the case for hawkish forward guidance remains close to zero. Besides the monetary policy, the markets are also keen to see whether Kuroda’s term as the central bank governor will be extended. Kuroda’s term as the BoJ governor expires in April next year.

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