BoJ raises rate to 1.25%; RBA flags inflation risks

Key points:

• An oil tanker under US Navy escort was struck by Iran in the Strait of Hormuz's southern Omani corridor, close to Khasab, Oman, after several anti-ship ballistic missiles were launched from southern Iran. The UKMTO confirmed the strike and reported that the crew are safe.
• OFAC, the US Treasury's sanctions arm, imposed sanctions on Iranian crypto exchange BitBank, accusing it of transferring hundreds of millions of dollars in bitcoin to the IRGC. This is part of a broader clampdown on the sanctions evasion network of financier Babak Zanjani.
• Oil prices dipped a little during the session, while gold advanced above $4,360 before retreating.
• Japan's August national CPI missed expectations on all measures: headline inflation was 1.9%, core 1.7% and core-core 1.7%. This led to a slight decline in the yen ahead of the BoJ's decision.
• The BoJ increased its policy rate from 1% to 1.25%, a 31-year high, as expected by markets. The vote included two dissents, indicating a less hawkish result than some had foreseen. USD/JPY climbed to about 157.00 from approximately 156.25.
• RBA Governor Michele Bullock informed a parliamentary committee that the upside inflation risks highlighted in August are now materialising, fuelled by Middle East oil prices, the AI investment surge and extreme weather. Markets now assign a 93% probability of a rate hike to 4.6% at the RBA's September 28-29 meeting, with rates expected to hit 4.85% by early 2027. AUD/USD edged up.
• Air Corsica grounded four of its seven ATR turboprop aircraft after pilots reported fume leaks in the cockpit and cabin, leading to migraines. ATR and engine manufacturer Pratt & Whitney are investigating, as reported by The Wall Street Journal.

On Thursday, Iran attacked an oil tanker that was travelling under US Navy escort in the Strait of Hormuz's southern Omani corridor, close to Khasab, Oman, after a series of anti-ship ballistic missile launches from southern Iran. The UKMTO confirmed the incident and stated that the crew are safe. In a separate development, the US Treasury's OFAC sanctioned Iranian cryptocurrency exchange BitBank, claiming that it transferred hundreds of millions of dollars in bitcoin to the Islamic Revolutionary Guard Corps. This is part of a broader action against the sanctions evasion network of financier Babak Zanjani. Oil prices edged slightly lower during the session, while gold climbed above $4,360 per ounce before pulling back.

In Asia, Japan's August national consumer price index missed forecasts on all fronts ahead of the Bank of Japan's policy decision. Headline CPI was 1.9% year-on-year, unchanged from July and below the expected 2.0%. Core CPI stood at 1.7%, down from July's 1.8% and missing the 1.8% forecast. The core-core measure also registered 1.7%, far below the 2.0% expected. The weaker data caused a slight yen decline, as it raised questions about how hawkish the BoJ's outlook would be, despite a rate hike still being widely anticipated.

The Bank of Japan then increased its short-term policy rate from 1%, the level set in June, to 1.25%, a 31-year high. The move was in line with market expectations, and USD/JPY subsequently climbed to about 157.00 from around 156.25. Two dissenting votes indicate a slightly less hawkish result than some investors had anticipated.

In Australia, RBA Governor Michele Bullock informed a parliamentary committee that the upside inflation risks flagged in August are now materialising, citing Middle East oil prices, the AI investment boom and extreme weather, despite slowing growth and unemployment steady at 4.5%. The RBA had kept its cash rate unchanged at 4.35% for a second consecutive meeting in August, but at the time identified the Middle East conflict and a global data centre investment boom as key inflation risks; both have since moved in an inflationary direction. "Developments since then suggest that although growth in the Australian economy is slowing, some of these upside risks to inflation appear to be materialising," Bullock said, adding that the labour market remains tight and that a period of subdued demand growth is needed to bring inflation back down. Her comments were widely interpreted as indicating that the RBA is likely to raise its cash rate at its September 28-29 meeting. Markets now imply a 93% probability of a fourth hike this year, to 4.6%, with rates seen reaching 4.85% by early 2027. AUD/USD edged higher on the statements.

In corporate developments, French airline Air Corsica grounded four of its seven ATR turboprops after pilots reported fume leaks in the cockpit and cabin, with some crew suffering migraines. ATR and engine manufacturer Pratt & Whitney are investigating the issue, as reported by The Wall Street Journal. ATR is a joint venture equally owned by Airbus and Italy's Leonardo.