MNI EXCLUSIVE: Former RBA Staffers Share Their Cash Rate Outlook

Per BBG headlines, the Japan Government has nominated Junko Koeda to the BoJ board. She will replace Seiji Adachi. 

• Per the new board member's website from Waseda Univsersity: "Ms. Junko Koeda previously held positions as a chief economist at the Ministry of Finance of Japan, an assistant professor at the University of Tokyo, and a staff economist at the International Monetary Fund. She has a Ph.D. degree in economics from UCLA and a bachelor’s degree from the University of Tokyo." (See this link for more details). 

The local bank sees modest downside risks to its trimmed mean forecast of 0.6%. Note the market consensus per BBG is also 0.6% for the trimmed mean. If the 0.6%q/q outcome is achieved, then the y/y rate will print 3.3% from 3.5% in Q4. 

• Westpac’s December quarter CPI near–cast is 0.3%qtr/2.5%yr. Our December Monthly CPI Indicator near–cast is 0.9%mth/2.5%yr.
• Various energy rebates and cost–of–living assistance have helped drive headline inflation to the midpoint of the RBA’s target band. Our Trimmed Mean estimate for the December quarter is 0.6%, with the annual pace easing back to 3.3%yr from 3.5%yr and the two-quarter annualised pace dropping to 2.7%yr.
• The CPI and the Trimmed Mean are ‘soft’ estimates (that are rounding up to the second decimal place) so we see modest downside risks to both.
• We estimate that energy rebates, the increase in rental assistance and public transport fare subsidies shaved 0.3ppt off the CPI and 0.1ppt off the Trimmed Mean in Q4.

ACGBs (YM +6.0 & XM +5.0) are stronger but off session bests after business conditions improved in December, driven by the retail sector and increased consumer spending.

• The NAB survey showed that conditions climbed 3 points to +6, reversing declines from the prior month and almost returning to its long-run average. The gains were led by a “notable uplift” in retail which re-entered positive territory for the first time since November 2023. Business confidence edged up 1 point to -2.
• Cash US tsys are ~2bps cheaper in today’s Asia-Pac session after yesterday’s strong rally.
• Cash ACGBs are 5-6bps richer with the AU-US 10-year yield differential at -12bps.
• Swap rates are 4-5bps lower.
• The bills strip has bull-flattened, with pricing +3 to +7.
• Tomorrow’s Q4 CPI data could be pivotal in determining whether the RBA initiates a long-anticipated monetary easing cycle. It may also influence the timing of an election, which must be held by May 17. Economists predict the trimmed-mean CPI will have declined to 3.3%, marking its lowest level in three years.
• RBA-dated OIS pricing is 1-5bps softer across meetings today. A 25bp rate cut is more than fully priced for April (123%), with the probability of a February cut at 78% (based on an effective cash rate of 4.34%).