BoJ, BoE expected to raise interest rates

With the Federal Reserve's monetary policy decision now out of the way for the time being, the focus will increasingly shift towards the Bank of Japan, which meets later this month. Bloomberg reports the Japanese data released yesterday.

Japan's bank lending grew at the slowest pace in 16 months in July, as companies used profits or sold bonds to raise funds rather than borrow from banks.

Loans excluding trusts rose 0.3 percent from a year earlier in July, the Bank of Japan said in Tokyo today, slowing from 0.7 percent in June. Lending adjusted for currency fluctuations, bad loan write-offs and securitizations grew 1.1 percent from 1.6 percent in June...

Japan's machinery orders fell a seasonally adjusted 10.4 percent to 960 billion yen ($8 billion) in June, the Cabinet Office said today in a separate report. The drop is larger than a 1.1 percent estimated decline by 40 economists surveyed by Bloomberg News, indicating that capital spending is losing steam and may hamper economic growth...

Japan's money supply, or M2 plus notes in circulation, rose 2 percent in July, the central bank said in a separate report. Broad liquidity, which includes bonds and investment trusts, gained 4.2 percent.

While the data were not exactly hot, it was enough to maintain expectations for a rate hike later this month. From another Bloomberg report:

Investors see a 69 percent chance the Bank of Japan will increase its key rate to 0.75 percent after its next meeting ends on Aug. 23, according to calculations by Credit Suisse Group. The probability rose from 47 percent on July 30, the lowest in almost a month...

There are also high expectations for another rate hike from the Bank of England. FT reports:

Interest rates look certain to rise to 6 per cent before the end of the year after the Bank of England on Wednesday cemented expectations of an autumn increase as it forecast a significant slowing in consumer spending to bring down inflation...

The Bank’s quarterly Inflation Report, out on Wednesday, showed the central projection for inflation falling to its 2 per cent target in two years as long as interest rates rise by another quarter point.

And the BoE is not likely to be swayed much by the recent market turmoil.

In light of the recent global turmoil, the Bank’s monetary policy committee “will be monitoring credit conditions”, said [BoE governor Mervyn] King. But he welcomed the widening of credit spreads as “a more realistic appraisal of risks”, adding it was not the job of central banks to bail out lenders. “Interest rates are not policy instruments for protecting unwise lenders from the consequences of their decisions,” he said.