How to conduct monetary policy

Daily update

Japan’s Ministry of Finance seemingly intervened in foreign exchange markets in defense of the yen. Such attempts to prop up a currency’s level only work in the long term if the weakness was caused by speculation, or if the temporary respite is used to correct the fundamental economic drivers of the weakness. This may have been more about the pace of weakness than any specific level.
The Bank of Japan left interest rates unchanged. The Bank of England left interest rates unchanged (with three dissents). Neither decision prompted a US-style selloff in longer-dated bonds. Bank of England governor Bailey knows how to communicate with markets, and there is no need for a monetary policy uncertainty risk premium in UK government bonds.
Japan’s Tokyo consumer price inflation data was pushed slightly higher by energy prices (otherwise was as expected). European July consumer price inflation should be unalarming —the only place an imminent inflation threat appears to exist is in the imaginations of the ECB’s Bundesbank faction.
US Michigan consumer sentiment offers noise to markets. Yesterday’s income and spending data release showed the consumer doing OK, although wage and salary growth in the first two quarters of this year has been mediocre.