<p>San Francisco Fed President Mary Daly is out with some candid comments today. She’s plugged into the core of the Fed and was the first to signal a higher path for Fed rates in November 2021. Her latest comments skew hawkishly but it’s conditional on the final round of data before the March 22 FOMC decision.</p><ul><li>I am beginning to think the labor market has a shortage of workers</li><li>Anecdotes from business leaders suggest inflation is slowing more than recent data suggests</li><li>Inflation is still high, have to think about ‚continuous tightening'</li><li>It would be a mistake to say we’ve done all we can do, impact of policy is still ahead</li><li>Further policy tightening, maintained for a longer term, will likely be necessary</li><li>Reshoring and the continued decline in labor force participation could mean more inflationary pressures ahead</li><li>The disinflation momentum we need is far from certain</li></ul><p>Between this and <a target=“_blank“ href=“https://www.forexlive.com/centralbank/fed-waller-fomc-may-need-to-raise-rates-beyond-decembers-51-54-central-tendency-view-20230302/“ target=“_blank“ rel=“follow“>Waller</a>, it looks like the Fed is setting up a shift in the dots to 6% or just below. There is certainly plenty of grey area and it’s contingent on the data between now and March 22 but it’s a fine line. Obviously, the market wasn’t spooked by Waller so I don’t see that changing on Daly but Powell is speaking on Wednesday and if he strikes some of these notes, the market could take notice.</p>

This article was written by Adam Button at www.forexlive.com.

<p>The Japanese Trade Union Confederation (JTUC, more commonly known as Rengo) says its survey of 2000+ unions in the country shows an average pay rise request of 4.49% this year. This is the highest since 1998’s 4.36% and is much higher than the 2.97% sought in 2022.</p><p>Japan’s „shunto“ spring wage talks are held each March, where larger firms meet with unions for wage talks. Agreements reached at these wage talks influence wages at smaller firms. </p><p>The Bank of Japan is encouraging higher wages to support <a target=“_blank“ href=“https://www.forexlive.com/terms/i/inflation/“ class=“terms__main-term“ id=“ad51a5a2-1afc-4f42-9e62-ea6faf6f90fa“ target=“_blank“>inflation</a>. It sees the current bout of high (for Japan) CPI as transitory only, as cost-push inflation that their forecasts expect to slow from the middle of the 2023 fiscal year (this begins on April 1). Indeed, there are some signs CPI growth is slowing already:</p><ul><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/japan-data-tokyo-area-headline-cpi-in-february-34-prior-44-20230302/“ target=“_blank“ rel=“follow“ data-article-link=“true“>Japan data – Tokyo area headline CPI in February 3.4% (prior 4.4%)</a></li></ul><p>Higher wages, the Bank argues, would support demand-pull inflation. This form of inflation, <a target=“_blank“ href=“https://www.forexlive.com/terms/b/boj/“ class=“terms__secondary-term“ id=“c1f60108-4283-4827-911e-95f01607c737″ target=“_blank“>BOJ</a> officials say, would help ensure more sustainable and stable inflation around the Bank’s 2% target. If the BOJ can achieve stable 2% inflation there is a case for a reduction in its ultra-loose, ultra-stimulatory policy. At the margin this would be yen supportive. </p><p>Bank of Japan Governor Haruhiko Kuroda and incoming head, from April 8, Kazuo Ueda, seated.</p>

This article was written by Eamonn Sheridan at www.forexlive.com.

<p>China’s parliamentary committees meet in the week ahead, beginning on Sunday in an event that will outline key government policies and targets. Chief among them will be a GDP growth estimate, which government advisors currently recommend at 4.5-5.5%. The consensus from economists is 4.9% but there’s some <a target=“_blank“ href=“https://www.reuters.com/world/china/china-increasingly-ambitious-with-2023-growth-target-may-aim-up-6-sources-2023-03-02/“ target=“_blank“ rel=“nofollow“>chatter </a>about 6%.</p><p>The two swing factors are 1) pent up demand from the reopening 2) the damaged property sector. </p><p>The government is expected to widen its annual budget deficit to around 3% of gross domestic product this year and issue about 4 trillion yuan in special bonds to support investment spending, according to Reuters sources. Some of that is already priced into markets so risks could run both ways but I see more upside than downside, given China’s (recent) penchant for over-promising and due to the new leadership looking to solidify its authority.</p><p>Spots to watch will be Chinese equities, commodities and commodity currencies. AUD/USD showed some life on Friday but was unable to get above the weekly high.</p><p>For more, here’s a <a target=“_blank“ href=“https://www.reuters.com/world/china/what-look-china-kicks-off-its-annual-session-parliament-2023-03-02/“ target=“_blank“ rel=“nofollow“>factbox on the NPC</a>.</p>

This article was written by Adam Button at www.forexlive.com.