EM market traders’ attention is on the BOJ

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The attention of emerging market traders is on Tuesday’s meeting of the Bank of Japan

Emerging markets may be closing July positively; but this week there are too many risks for some investors to put aside their hesitation.

With policy makers gathering in the US, Japan and UK, traders face more volatility. Marking the expected price fluctuations in emerging markets, the indicator headed for the longest monthly rising series since the 2008 financial crisis.

According to Goldman Sachs, even the slightest hint that the Bank of Japan (BOJ) is changing its ultra-wide monetary policy could mobilize investors, with borrowing costs increasing, affecting the Turkish lira, South African Rand and Indonesian Rupee.

The BOJ made an unlimited bond purchase offer for the third time on Monday, after the 10-year interest rate climbed to its nearly 18-month high.

“We don’t want to increase risk in emerging markets right now,” said Paul Greer, Fidelity International fund manager in London. “This week, most of our attention will be on the decisions of central banks of developed countries: especially the language used by the FOMC and a hint of policy normalization from the BOJ.

According to Greer, the expectation for higher US interest rates and the Fed’s balance sheet tightening, coupled with trade protectionism and the possibility of further weakening in the yuan, “ensures a higher risk premium in emerging markets”.

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