- March US retail sales figures were less weak than some economists anticipated.
- US sales increases in January and February placed Q1 consumer spending solidly on course to increase.
- Ueda believes Japan’s inflation will drop below the BOJ’s target of 2% later this year.
On Friday, currency futures fell as the dollar recovered from a one-year low after some March retail sales figures were not as weak as some economists had anticipated. A top Federal Reserve official cautioned that the US central bank must raise rates to reduce inflation.
The dollar recovered from an initial decline when statistics revealed that US retail sales decreased more than anticipated in March. Customers reduced their purchases of automobiles and other expensive items.
Core retail sales, which most closely reflect the consumer spending portion of the GDP, decreased by 0.3% last month. Nevertheless, despite the decline in March, the increases in January and February placed Q1 consumer spending solidly on course to increase.
Other statistics released Friday indicated slightly improved US consumer sentiment in April. However, those surveyed still expected higher inflation over the next 12 months. Additionally, March production at American industries was lower than anticipated, though the first quarter saw a slight increase.
According to Fed Governor Christopher Waller, despite a year of aggressive rate rises, American central bankers “haven’t made much progress” in getting inflation back to their 2% objective. They must therefore raise rates higher.
Austan Goolsbee, president of the Chicago Fed, added that a US recession is possible as the economy adjusts to the Fed’s significant rate increases over the past year.
Trading in Fed funds futures indicates an 81% likelihood that the Fed will increase interest rates at its meeting on May 2-3 by an additional 25 basis points.
Policymakers gathered for discussions on global banking over the last week received a clear message from Kazuo Ueda, the new governor of the Central Bank of Japan. Japan will keep its ultra-low interest rates in place, at least for now, continuing to be a dovish outlier. This saw the yen weaken.
According to him, falling import costs will cause Japan’s inflation, which is presently hovering around 3%, to drop below the BOJ’s target of 2% later this year.
The dovish remarks from the BOJ are an effort to avoid a repeat of January. The market’s anticipation of a quicker adjustment to the BOJ’s yield curve control (YCC) policy caused long-term interest rates to increase in January.
