Asian Markets Eye RBA, BOJ’s Ueda Amid Shifting Global Rate Hike Expectations

Asian markets are bracing for a potentially subdued session on Tuesday as investors navigate a confluence of factors, including a lackluster performance on Wall Street and upcoming policy signals from the Reserve Bank of Australia (RBA) and Bank of Japan (BOJ) Governor Kazuo Ueda.

Despite closing relatively flat, the S&P 500 remains within striking distance of last week’s record high, reflecting lingering optimism generated by the Federal Reserve’s recent policy decision. The Dow Jones Industrial Average even managed to notch a fresh peak at 42,190 points.

Bolstering the bullish sentiment, Chicago Fed President Austan Goolsbee suggested that the Fed’s policy rate remains “hundreds” of basis points above neutral, implying further rate cuts could be in store over the coming year. Goolsbee’s remarks echo surprisingly dovish comments from Fed Governor Christopher Waller, who indicated that inflation may be cooling faster than anticipated.

However, this wave of dovish rhetoric has also sparked concerns about the potential reasons behind such aggressive policy easing, highlighting the importance of closely monitoring upcoming economic data releases.

In the meantime, all eyes will be on the RBA’s interest rate decision. With inflation stubbornly above the central bank’s 2-3% target range and the labor market remaining robust, economists widely expect the RBA to maintain its current cash rate of 4.35%.

While Australian swaps markets suggest a modest possibility of a rate cut by year-end, the implied easing pales in comparison to other G10 central banks, except for the BOJ and Swiss National Bank.

Meanwhile, the BOJ, currently the only major central bank in tightening mode, remains a focal point for investors. Governor Ueda’s speech on Tuesday will be closely scrutinized for clues regarding the future trajectory of Japanese monetary policy. Despite recent signs of easing inflationary pressures, the BOJ has signaled that it is in no rush to alter its current course.

Adding another layer of complexity, the People’s Bank of China recently injected liquidity into its financial system for the first time in months, utilizing a lower rate than previously employed. However, it remains to be seen whether Beijing’s stimulus efforts will be sufficient to combat deflationary pressures and reinvigorate economic growth.

Key Economic Events to Watch:

• Australia Interest Rate Decision
• BOJ Governor Kazuo Ueda Speech
• Japan Flash PMI (September)

These events will be critical for gauging the near-term direction of Asian markets as investors grapple with shifting global rate hike expectations and assess the implications for regional economic growth prospects.