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Why is Bank of Japan Still Dovish Amid a Cast of Hawks?

The Bank of Japan appears to be the last one amid a flock of eagles comprising the Federal Reserve, Bank of England, Reserve Bank of Australia and more recently the European Central Bank and Swiss National Bank.

The question is why? The BoJ has been accustomed to dealing with deflation with an accommodative monetary policy for years so it will take some time for their focus to shift to a new reality. Numbness borders on extreme.

Bank of Japan Still Dovish Amid a Cast of Hawks

The central bank's recent purchase of 10.9 trillion yen of Treasury bonds was the largest on record and a sharp departure from the Federal Reserve's decision to end quantitative easing. The BoJ may eventually add to inflation and impose costs on the Japanese economy, which now needs to do better to justify increased liquidity.

Does the BoJ manage risk better than its US counterparts? The inflation rate in Japan is significantly lower than in the US. Headline inflation was 2.1 percent in April, relatively low compared to North America, where crude oil prices have pushed up supply chain costs. Japan's latest inflation data for May will be released on June 24 when the BoJ may consider a different and riskier scenario.

The BoJ needs to resolve conflicting economic trends: Higher inflation requires higher interest rates, but lower post-COVID growth requires accommodative monetary policy. The central bank minutes will be released at a later date and provide more insight into the current mindset.

Canadian retail sales

Business news from Canada is out today with the April Retail Sales release. Retail sales are expected to have risen to 0.8 percent from zero and any surprise could move the CAD pair. Inflation in Canada is high, which means consumers can limit their spending on retail goods. Weaker retail sales could hurt overall GDP performance, so it's important to keep an eye on this report.

UK inflation rate

The UK releases all the latest important CPI data on June 22. The annual inflation rate is expected to have risen to 9.1 percent in May from the previous level of 9 percent in April. If the actual yield is higher than expected, the GBP currency pair may experience volatility.

What are Central Bank Minutes?

In addition to key interest rate decisions and monetary policy statements, central banks publish copies of their minutes disclosing the results of discussions on the economy. Current economic thinking is an important factor influencing future monetary policy decisions. Often the world's media picks up on words that symbolize current thinking, such as “patient” (Australia) or “tapered” (US).