- AUD/JPY extends losses following Jibun Bank services PMI data on Wednesday.
- Japan’s services PMI came in at 53.7 in August, versus the estimate of 54.0, marking the seventh consecutive month of expansion.
- The Australian dollar fell as GDP reported a 0.2% quarter-on-quarter increase in the second quarter, below expected readings of 0.3%.
The AUD/JPY depreciated for the second consecutive day, trading around 97.50 during European hours on Wednesday. The AUD/JPY pair’s decline could be attributed to the improvement in the Japanese Yen (JPY) following the release of Jibun Bank’s services PMI data on Wednesday. The index was revised to 53.7 in August from an initial estimate of 54.0. Although this marks the seventh consecutive month of expansion in the services sector, the latest figure remains unchanged from July.
On Wednesday, Japan’s Chief Cabinet Secretary Yoshimasa Hayashi said he is “closely monitoring domestic and international market developments with a sense of urgency.” Hayashi stressed the importance of conducting fiscal and economic policy management in close coordination with the Bank of Japan (BoJ). He also stressed the need for a calm assessment of market movements, but declined to comment on daily stock fluctuations.
The Australian Dollar (AUD) extended its losses following the release of Australia’s Gross Domestic Product (GDP), which showed an increase of 0.2% quarter-on-quarter in the second quarter, compared with 0.1% in the previous quarter, but below the expected reading of 0.3%.
In addition, China’s services Purchasing Managers’ Index (PMI) fell from 52.1 in July to 51.6 in August, which is notable considering the close trade relationship between China and Australia. Furthermore, Bank of America (BoA) has revised its economic growth forecast for China, lowering its projection for 2024 to 4.8% from 5.0% previously. For 2025, the forecast is adjusted to 4.5% growth, while the outlook for 2026 remains unchanged at 4.5%.
Central Banks FAQs
Central banks have a key mandate which is to ensure price stability in a country or region. Economies constantly face inflation or deflation when prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant fall in the prices of the same goods means deflation. It is the job of the central bank to keep demand in line by adjusting its interest rate. For larger central banks, such as the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has an important tool to raise or lower inflation: changing its benchmark interest rate. At pre-announced times, the central bank will issue a statement with its benchmark interest rate and give additional reasons for why it is holding or changing it (cutting or raising it). Local banks will adjust their savings and lending rates accordingly, which in turn will make it harder or easier for citizens to earn profits on their savings or for companies to borrow and invest in their businesses. When the central bank substantially raises interest rates, it is called monetary tightening. When it lowers its benchmark rate, it is called monetary easing.
A central bank is usually politically independent. Members of the central bank’s policy council go through a series of panels and hearings before being appointed to a position on the policy council. Each member of that council usually has a particular conviction about how the central bank should control inflation and the resulting monetary policy. Members who want very loose monetary policy, with low rates and cheap loans, to substantially boost the economy, while being content with inflation just above 2%, are called “doves.” Members who prefer higher rates to reward saving and want to keep inflation under control at all times are called “hawks,” and they will not rest until inflation is at or just below 2%.
Typically, there is a chairman who chairs each meeting, has to build consensus between hawks or doves, and has the final say when votes must be split to avoid a 50-50 tie on whether current policy should be tightened. The chairman will make speeches, which can often be followed live, in which he or she will communicate the current monetary stance and outlook. A central bank will try to push its monetary policy forward without causing wild swings in rates, stocks, or its currency. All central bank members will channel their stance to the markets before a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, members are prohibited from speaking publicly. This is called a silent period.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
