Focus on Japan and Israel | MACROCAST

  • Monday, December 26, 2016

Welcome to The Signal’s “Macrocast.” Each week, we provide analysis and forecasting on the most important upcoming central bank communications.

Bank of Japan
Forecast: Minutes reveal optimism about Japanese economy
Analysis: As anticipated, the BOJ held rates and adopted a more hawkish* policy stance at last week’s policy meeting. The minutes echo this more hawkish sentiment (residual** 1.50). This rising sentiment raises the question of when tapering will begin, whereas a few months ago the operative question was whether or not it was possible for the BOJ to purchase more JGBs.

Bank of Israel
Forecast: Likely to hold rates on December 26
Analysis: Despite dovish momentum (-0.59), the Bank of Israel is likely to once again hold rates at its policy meeting this week. Renewed hopes of softening deflationary pressure have buoyed the bank’s weak sentiment, so a slightly less dovish tone is expected from this week’s meeting.

The Signal Team

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* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as the basis of evaluation for future communications. The scores are normalized around zero and range between -2 and 2, negative numbers indicating dovishness and positive numbers indicating hawkishness. Aggregate trend is the overall sentiment of the bank calculated using a LOESS fitting of trend using a 12-month window.

** Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker. Raw scores represent the tone of a communication compared to the average of all communications. Momentum is the average of the last ten residual scores.

Disclaimer: the forecasts provided herein are based upon sources believed by Prattle Analytics, LLC D/B/A Prattle, to be reliable and to be developed from models which are generally accepted as methods for producing economic forecasts.

Prattle cannot guarantee the accuracy or completeness of the information upon which this Report and such forecasts are based. This Report does not purport to disclose any risks or benefits of entering into particular transactions and should not be construed as advice with regard to any specific investment or instance. The opinions and judgments expressed within this Report made as of this date are subject to change without notice.

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