Yesterday, the Bank of Japan and the European Central Bank successively announced interest rate resolutions. Japan's interest rate strategy remains negative at -0.1%, and the yield of 10-year Japanese treasury bond bonds remains unchanged at about 0%. The European Central Bank also maintains monetary policy unchanged, but President Lagarde believes that the expectation of interest rate hikes is not firm enough.

The Bank of Japan stated that the current economy is in a severe state, with risks leaning towards a downward trend, but there is a trend of recovery. For the economic outlook, the Bank of Japan has lowered its GDP forecast for this year, with the 2021 GDP forecast lowered from 3.8% to 3.4%. However, the 2022 GDP forecast has been raised from 2.7% to 2.9%.

The Bank of Japan pointed out in its report that the loose monetary policy environment and government measures have led the Japanese economy towards a post pandemic era, which helps to boost potential growth.

The International Monetary Fund has also been calling on Japan to accelerate labor market reform and deregulation to counter the challenge of a declining workforce and achieve long-term sustained economic recovery.

Market expectations for the European Central Bank to raise interest rates next year

Yesterday, the European Central Bank also announced that it will maintain monetary policy unchanged, in line with market expectations. The bank stated that it will continue to moderately reduce its bond buying speed this quarter compared to the previous six months, but will maintain its ultra-low interest rate guidance for the next few years.

According to reports, European Central Bank President Radega stated in his speech on Thursday that he attempted to strengthen the policy commitment of ultra loose money, but failed to convince the market. In addition, according to the economic assessment released by Radega, the rise in inflation is no longer considered a "temporary" issue, and it is believed that the rise in inflation may last longer than expected.

nvestors expect the European Central Bank to start raising interest rates as early as next year and bet that the bank will raise rates at least once before September next year.

Imogen Bachra, interest rate strategist at Natwest Markets, said that Lagarde's emphasis on price upward pressure may now put the economic recovery at risk, and his argument is still biased towards doves.

Next week's FOMC meeting will see a heavyweight attack on non agricultural data

The Federal Reserve will hold FOMC meetings next Tuesday and Wednesday (2nd and 3rd) US time. The market forecast meeting will discuss the specific timing and scale of reducing bond purchases.

Looking back on earlier speeches by Federal Reserve Chairman Powell, it is believed that the United States has achieved sufficient conditions in the labor market and economic recovery. Even if the September non farm report is not as strong as expected, there is still a possibility of triggering a Fed contraction.

Many Federal Reserve officials have also expressed their support for the Fed starting to reduce its bond purchases. Regarding interest rate hikes, Powell stated that the Federal Reserve has different standards for interest rate hikes, and there is still some distance to go.

However, many Fed officials predict that the Fed may raise interest rates for the first time as early as mid next year.

The October non farm report will be released after the FOMC meeting. Although the market generally believes that the Federal Reserve will not wait for the October report numbers to announce a reduction, this report may still affect the Federal Reserve's expected rate hike. If the October non farm employment data is stronger than expected, it may enable the Federal Reserve to meet the conditions for interest rate hikes more quickly.

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