US Small Business Headwinds / BoJ Negative Interest Rate Discussions
The National Federation of Independent Business (NFIB) reported that optimism among small business owners in the US fell to its lowest level in nine months in February; hindered by the impact of higher prices, increased borrowing, and the sustained tight labour market. The sentiment index dropped slightly by half a point to 89.4, marking the 26th-straight-month when the index remained below its 50-year average of 98.
Bill Dunkelberg, the NFIB's Chief Economist, stated: "Despite a reduction in inflation pressures since their 2021 peak, the burden of higher prices and interest rates continues to weigh on small-business owners." He also noted that although there had been an improvement in the labour market allowing small business owners to attract and retain workers, the market was still tight.
The report also noted a downturn in the willingness of small businesses to undertake capital expenditures, with only 21% planning such investments in the near future, marking the lowest level since April 2023. Furthermore, just 5% of the respondents considered it a good time for expansion, a drop of 3% from the previous month, and the least optimistic outlook since September. The expectation of deteriorating business conditions was expressed by 39% of respondents, with earnings also showing signs of weakening.
Elsewhere, the Bank of Japan (BOJ) is set to discuss bringing an end to its negative interest rate policy in an upcoming policy meeting that begins on Monday. This reconsideration is being prompted by significant wage increases from leading companies, finally bringing the central bank's inflation target of 2% within sight.
The sentiment within the BOJ has certainly shifted, with rumours of a growing number of policymakers in favour of this move. The ultimate decision, however, is expected to hinge on the outcome of Japan's yearly wage negotiations, the results of which will be announced by the labour union, Rengo, on Friday.
Furthermore, BOJ officials are also contemplating the discontinuation of the yield curve control policy, which currently maintains a nominal cap of approximately 1% on long-term interest rates. Even with the potential policy shift, the central bank plans to sustain its acquisition of Japanese government bonds at some level to avoid volatility in rates.
At the time of writing, the market is pricing a 55% chance of a BOJ rate hike next week.
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