NEW DELHI: Analysts are predicting that the Tuesday’s markets are likely to be roiled if the Bank of Japan chooses to change tack on its monetary policy and combines a rate cut with an easing in the purchase of longer-dated assets.
If the BoJ, led by Governor Haruhiko Kuroda, decides to take that tack and the US Federal Reserve chooses to put off hiking the long feared Fed rate to December, it could well steal the thunder from Federal Reserve Chairperson Jane Yellen.
“Given the recent data - that’s been softer, markets are not expecting any major change in stance from the US Federal Reserve. It is believed that the Fed will hold off on an interest rate hike until December and could use the September communiqué to just ‘prep’ the markets,” pointed out Abheek Barua, Chief Economist, HDFC Bank.
“De facto, the real action is likely to be coming out of Tokyo, where speculation is rife for a possible rate cut (deeper into negative territory), an extension of the ongoing asset purchase program and above all, a possible tapering in overall purchases of long-dated bonds (JGBs),” he added.
The move would be a major change from BoJ’s existing policy and markets would likely take some time to settle down, opine experts. Especially since Asian and Indian markets will be closed by the time the US Fed makes its announcements, and investors will be looking to take hints from Yellen’s speech regardless of whether the Fed rate is hiked or not.
“Investors are widely expecting status quo on interest rate, however, any hawkish commentary from the Fed may divert liquidity to safe haven assets and add volatility to the domestic market,” said Vinod Nair, Head, Research, Geojit BNP Paribas Financial Services.
The final word from experts is that markets will remain volatile until clarity is gained on both Central Banks’ policies.