Key Takeaways
- BOJ Governor Kazuo Ueda signaled a readiness to raise interest rates further, warning that policy will not be delayed until inflation fully stabilizes at 2% to avoid the risk of a significant overshoot.
- French preliminary July CPI rose to 2.1% year-on-year, exceeding estimates of 1.8% and marking a sharp re-acceleration from June's 1.8% reading, driven by rising service and energy costs.
- South Korea’s KOSPI index staged a historic 17.9% intraday rebound, fueled by a record ₩8.6 trillion net buying spree from overseas investors following a massive sell-off earlier in the week.
- The Bank of Japan maintained its short-term policy rate at 1% in an 8-1 vote, with board member Hajime Takata dissenting in favor of an immediate hike to 1.25%.
BOJ Maintains Rates but Hardens Hawkish Stance
Bank of Japan (BOJ) Governor Kazuo Ueda delivered a decidedly hawkish message following the central bank's decision to hold interest rates steady at 1.0% on Friday. Ueda emphasized that the BOJ will conduct monetary policy with a focus on "staying ahead of developments," noting that the impact of policy on growth and prices takes considerable time to materialize. He specifically flagged AI-driven demand and exchange rate risks as critical factors that could force the bank's hand if they lead to inflation exceeding the 2% target.
The Governor's comments suggest that the BOJ is shifting away from its historically cautious approach, as he reaffirmed a commitment to a steady path toward price targets. Market participants interpreted the remarks as a signal that another rate hike could be on the table as early as October, especially as Ueda noted that Japan’s economy continues to benefit from accommodative financial conditions despite recent tightening.
French Inflation Surprises to the Upside
In Europe, preliminary data from INSEE showed that French consumer price inflation (CPI) accelerated to 2.1% in July, up from 1.8% in June. This figure surpassed the 1.8% consensus estimate and was mirrored by the EU-harmonized index, which climbed to 2.4% year-on-year. The spike was primarily attributed to a "notable bump" in accommodation and communication services, alongside rising prices for gas and petroleum products.
Conversely, June's Producer Price Index (PPI) for France showed continued cooling, falling 0.6% month-on-month and slowing to a 2.6% annual increase. The divergence between falling producer costs and rising consumer prices highlights the stickiness of service-sector inflation, which may complicate the European Central Bank's (ECB) upcoming policy deliberations in September.
Record Foreign Inflows Spark KOSPI "Pillar of Fire"
South Korea’s equity market experienced unprecedented volatility as the KOSPI index surged nearly 18% in a single session, reclaiming the 6,500 level. This "explosive rally" was driven by overseas investors who recorded their largest-ever buying spree, adding ₩8.6 trillion to the market. The surge followed a brutal two-day period where the index had shed over 16% of its value due to an unwind in AI-related semiconductor trades.
Heavyweights Samsung Electronics (005930) and SK Hynix (000660) led the charge, with Samsung soaring 28% and SK Hynix hitting its daily upper limit. While the rebound was historic, local analysts cautioned that the move was amplified by short-covering and mechanical rebalancing, warning that the market's "weakened stamina" remains a concern as retail investors continued to exit the market in record numbers.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.