Macroeconomics: The Day Ahead for 18 September 2026

The week ends with the expected BoJ rate hike, but as with the Fed and BoE, and out of the necessity of a myriad of uncertainties confronting markets and policy makers, there is little clarity on where the respective end trajectories for rates are likely to be. The resumption of oil distribution via Saudi Arabia’s East-West pipeline was enough to trigger a further leg lower in oil prices, but both Brent and WTI remain above the $100 level, and as ever only a headline about attacks on shipping or oil infrastructure away from jumping back up again. The data schedule is quite modest with Japan’s National CPI, UK Retail Sales and German PPI to digest ahead of US Industrial Production, with a busier run of central bank speakers following the various policy meetings this week. Tensions remain very high in the Middle East and Black Sea, with China’s intervention asking Iran to restrain Houthi attacks following a request from Saudi Arabia perhaps of most significance, especially given the US refusal to participate in Saudi attacks on Houthi military targets in Yemen.

Japan – BoJ policy meeting

Whether one wants to classify it as political interference or simply call out the BoJ for being indecisive, it remains amazing how often the BoJ undermines its own policy decisions, with two PM Takaichi appointees voting against the expected 25 bps rate hike to 1.25% in favour of no change and thus casting renewed doubt on its future policy path. The fact that the split vote followed on from the unanimous Fed decision to hike rates only reinforces that impression and leaves the JPY under renewed pressure.

The accompanying BoJ statement and Ueda’s press conference were cautious on the pace of future rate hikes, emphasizing that CPI is still just below target (though it is, in fact, artificially low due to government subsidy measures), even if they also noted upside risks to the inflation outlook. While Ueda did respond to questions about whether the BoJ would consider an outsized rate hike, the enduring impression was one of caution about sounding too hawkish, as per: “If risks of underlying inflation overshooting 2% materialise, that could have a negative impact on Japan’s economy”, while also noting, “It’s important to stabilise underlying inflation at 2%. Our policy phase has changed.”

A further rate hike in December looks very probable, but with the Fed and ECB, and likely the BoE, on course for further rate hikes, and the BoJ still well behind the curve, the weakness of the JPY remains the pressure valve that highlights the BoJ’s overly cautious approach, regardless of a renewed threat of FX intervention from Finance Minister Katayama.

U.K. – Aug Retail Sales

While Sales were a lot stronger than expected at 0.5% m/m vs. a forecast of -0.2%, the August rebound from -0.5% m/m still leaves sales flat vs. the end of Q2 and, per se, does not really undermine yesterday’s BoE messaging on the economy, which stressed that while a more protracted period of high energy prices poses increasingly significant risks to the inflation outlook, there are as yet few signs of significant pass-through effects.

Indeed, one can argue that the latest round of energy price pressures will likely be more evident in sales and other activity indicators in the coming months. The MPC meeting was, in any case, more significant for its decision to reshape its balance-sheet reduction programme, by way of a long-overdue decision to end active sales of long-dated gilts (23 years plus), reducing overall active sales to £20 Bln per annum and pausing sales for the next six months, while also selling gilts due to mature between 2035 and 2049 back to the government, with full plans due before April 2027, and thus giving full control of gilt sales back to the DMO.