BOJ intervenes for the second time

BOJ's tactical bond intervention and BOE's decision on interest rates

By Ahmed Azzam | @3zzamous | 3 August 2023

  • BOJ implements second unscheduled JGB purchase to tame bond yields

  • BOE poised to raise interest rates amid a recent inflation slowdown

  • Tech giants Apple and Amazon face challenges with declining revenue and AI strategies

Asian stocks extended their decline for a third consecutive day, taking cues from Wall Street's losses spurred by robust US labor-market data. In particular, Evergrande Property Services, which had been on a trading hiatus since March 2022, saw its shares plummet by approximately 50% in Hong Kong. On the other hand, US and European equity futures exhibited mostly positive momentum. Meanwhile, the yen faced a decline following the Bank of Japan's announcement of unscheduled Japanese government bond (JGB) purchases, the second such intervention this week. As a result of these developments, Treasuries experienced lower prices, while Brent crude oil prices saw an upswing.

BOJ's intervention sparks Yen weakening and Tokyo Stock ripples

The Bank of Japan's move to rein in surging sovereign bond yields demonstrated its resolve to control rapid fluctuations in rates while still allowing room for gradual increases. However, investors faced challenges in interpreting the central bank's flexible rates regime, which lacks absolute clarity for the markets. The impact of this operation was immediately evident in the currency market, as the yen weakened. Consequently, mild volatility was observed in the Tokyo stock market, which continued its downward trajectory.

BOE set to raise rates as inflation eases, markets brace for more

In the United Kingdom, the Bank of England (BOE) is expected to raise interest rates yet again, given the recent slowdown in inflation. This decline in inflationary pressures has provided policymakers with an opportunity to consider reducing the magnitude of the rate hikes. Economists predict a minimum 25-basis-point increase, taking the interest rate to 5.25%, with a strong likelihood of a repeat of the 50-basis-point hike witnessed in June. The markets are now preparing for interest rates to peak at around 5.75% by the end of the year, a figure almost a full percentage point below expectations from just a month ago.

Tech titans Apple and Amazon face revenue and AI

In the corporate sphere, attention turns to tech giants Apple and Amazon. Apple is poised to reveal its third consecutive year-over-year revenue decline, while investors closely monitor Amazon's cloud computing unit and its strategies to capitalize on artificial intelligence technologies.

US economic data on the radar: Jobless claims, factory orders, and ISM services index

Upcoming US economic data includes the projection that initial jobless claims will hover around 225,000. Furthermore, June factory orders are anticipated to rise by 2.3%, up from May's 0.3% increase, and July's ISM services index may experience a slight dip.

In Turkey, inflation is expected to rebound after eight months of deceleration, largely due to a series of tax hikes introduced to address a ballooning budget deficit. The Consumer Price Index (CPI) is projected to rise by 46.8% in July, following a 38.2% gain the previous month.