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A tale of two central banks

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  • Just hours after the symbolic ending of quantitative policy in the US, the Bank of japan surprised markets with additional quantitative measures. The stated aim is to maintain inflation expectations. It is worth noting that Japanese consumers always have positive inflation expectations.
  • Japanese quantitative policy, very unusually, leaks. Overseas lending and foreign direct investment have grown under quantitative policy. The best hope for domestic growth may be to weaken the yen, boost exporters' profits, and then pressure exporters to pay profits out in higher domestic wages.
  • With the Bank of England and the Federal Reserve going one way, and the Bank of Japan going another way, investors may start to view current ECB policy as dithering around in the middle. Inflation and unemployment data are not likely to help the impression today.
  • In the wake of reasonable strength in third quarter GDP, US Fed President Williams (a dove who votes next year) is to give some remarks. The employment cost index (inflation pressures) and personal income and consumption data are all due.

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