20 July, 2017
The Bank of Japan will conclude a policy meeting on Thursday. The scheduled buying program runs through December of this year (an extension of a program originally scheduled to end in March).
Market watchers will focus on the bank's standing promise that it could increase the purchases in size or duration if the outlook worsens. That would have been a verbal step toward the exit. Reports say Draghi intends to announce preparations to end the bond-buying program at the Federal Reserve's Jackson Hole Symposium (http://www.marketwatch.com/story/ecbs-draghi-to-attend-feds-jackson-hole-conference-for-first-time-in-3-years-wsj-2017-07-13).
The index touched a low of 94.27 on Tuesday, the lowest trough since August 26, 2016 and is down more than 7% for the year to date. Mr. Draghi's message there was that given strong economic data, the European Central Bank could need to tighten policy slightly in order to maintain the same level of support to the economy.
Euro zone bond yields may have also come under upward pressure after Spain and France sold bonds via auctions on Thursday.
The end of the stimulus will eventually have wide-ranging effects on investors, governments and ordinary people.
However, Didier Rabattu, head of equities at Lombard Odier Investment Managers, believes ongoing weakness in inflation in the bloc and concern over the banking sector could dampen the Draghi's enthusiasm for raising rates.
"We have seen very little impact on peripheral spreads since Sintra but this could change very rapidly in a short period of time if the messaging is a bit too hawkish today", said DZ Bank strategist Daniel Lenz.
On the consumer side, home buyers would get less house for a given mortgage amount due to a higher share of interest costs.
Other policy makers backed this assessment.
United Kingdom retail sales are due at 0930 BST, while the latest policy announcement from the European Central Bank is at 1245 BST.
"After the Eurozone inflation release found June CPI unrevised at 1.3%, attention for euro traders will be on Thursday's European Central Bank interest rate decision and press conference (typically a source of volatility in the euro)". The bank must hope that the economic recovery eventually pushes up inflation as new jobs are created and companies pay workers more. The ECB purchases the bonds with newly created money, pushing that new money into the financial system and the economy.
The yen meanwhile had weakened to 112.325 per dollar after the BOJ pushed back its projected timing for hitting its 2 percent inflation target until 2020.
JPY traders poured into United States dollars following the bank's report.
"The pound had rallied recently on signs that the Bank of England might raise interest rates sooner than previously expected".
