The Bank of Japan (BoJ) reiterated its commitment to raising interest rates if inflation continues to align with its 2% target, despite recent market volatility. This hawkish stance, coupled with the prospect of US rate cuts, is creating a complex environment for the dollar-yen exchange rate. While the BoJ monitors market developments, it remains committed to gradually normalizing monetary policy, indicating further rate hikes are possible.
U.S. stocks closed higher on Thursday, fueled by strong retail sales data and falling jobless claims, easing recession fears. The positive sentiment extended to Asian markets on Friday, with Japan’s Nikkei leading the charge. European markets were mixed, with Germany’s DAX advancing and the UK’s FTSE 100 declining. Commodities were mostly lower, with oil and copper prices down, while gold rose.
Japan Airlines CEO Mitsuko Tottori has expressed worries that the ongoing depreciation of the yen against the U.S. dollar may dampen the enthusiasm of Japanese travelers, particularly the younger generation. The yen recently fell below the ¥155 mark, marking a 34-year low and sparking speculation of potential government intervention.
The Bank of Japan (BOJ) is likely to maintain its benchmark interest rate at 0.1% during its upcoming meeting, despite an improved outlook for Japanese wages and a recent decline in the yen. This follows the BOJ’s shift in policy in March, when it raised rates from negative territory for the first time since 2007. However, the central bank remains committed to keeping monetary conditions accommodative in the near term to support economic growth in Japan.
Nevertheless, factors that contributed to the March rate hike remain present, such as expectations of an uptick in Japanese wage growth and inflation. BOJ Governor Kazuo Ueda has hinted at the possibility of further rate hikes this year if wage growth and inflation continue to rise. However, he has also stressed the need for a loose policy in the short term due to the fragility of the Japanese economy.
Recent data indicating resilience in Japanese business activity and a pickup in inflation could prompt the BOJ to raise its inflation outlook for the year. Additionally, the recent weakness in the yen, which hit 34-year highs against the US dollar, may also lead to hawkish rhetoric from the BOJ in an attempt to stem the currency’s slide.
A failure by the BOJ to address the yen’s weakness could expose it to further downside pressure, potentially driving the USDJPY pair beyond 155. Conversely, any hawkish signals from the central bank would likely boost the yen and drag the USDJPY pair away from its highs. However, analysts believe that the recovery in the yen may be limited due to the persistence of higher US interest rates, which have been a major source of pressure on the currency.
The Bank of Japan will release its policy statement and Governor Kazuo Ueda will speak on Friday. The timing of the release is uncertain, but it is expected to be between 0230 and 0330 GMT (22030 to 2330 US Eastern time on Thursday). Governor Ueda will speak shortly after, at 0630 GMT (0230 US Eastern time). The market is closely watching the statement and speech for any indication of a change in the BoJ’s ultra-loose monetary policy. In September 2022, the BoJ intervened to prop up the yen after former Governor Haruhiko Kuroda’s comments stressed the bank’s resolve to maintain the policy. Governor Ueda is likely to be cautious in his remarks to avoid causing market volatility. The BoJ is also expected to leave interest rates unchanged and maintain its guidance to keep buying government bonds at a pace of around 6 trillion yen per month.
Asian stocks fell on Thursday as disappointing earnings forecasts from Meta Platforms hammered tech shares. Meta’s shares dropped 15% in extended trading after the company forecast lower-than-expected revenue and higher expenses, sparking a sell-off in tech stocks. The broader MSCI Asia-Pacific index excluding Japan fell 0.7%, led by a 1.3% drop in Japan’s Nikkei and declines in China and Hong Kong stocks. Investors are now focusing on earnings reports from Alphabet, Microsoft, and Intel later on Thursday, as well as U.S. GDP and PCE inflation data for March on Thursday and Friday.
The yen has weakened below the 155-per-dollar mark as the Bank of Japan (BOJ) embarks on its two-day rate-setting meeting. The currency has been under pressure, with the US dollar breaking above the key psychological threshold for the first time since 1990. Speculation has been rife that Japanese authorities may intervene to support the yen, but no such action has been taken yet. The BOJ is expected to maintain its ultra-loose monetary policy stance, making significant appreciation of the yen unlikely, despite its historically low levels.
The Japanese yen remained weak against the US dollar on Thursday, hovering around 155 yen per dollar as the Bank of Japan (BOJ) commenced its two-day rate-setting meeting. Market participants anxiously await any potential intervention from Tokyo’s policymakers. Despite speculation of intervention to support the yen, the dollar surpassed the psychologically significant 155 yen level, reaching its highest point since 1990. The BOJ’s policy deliberations are expected to maintain short-term interest rates unchanged, prompting expectations of continued gradual policy tightening and low terminal rates. This outlook makes it challenging for the yen to appreciate significantly, despite its historically low levels. However, BOJ Governor Kazuo Ueda has indicated a willingness to raise rates if inflation continues to accelerate towards the 2% target. Broader currency markets witnessed the dollar regaining ground after earlier losses, buoyed by upbeat business activity data from the euro zone and the UK. The euro and sterling rose but later retreated slightly, while the dollar remained firm against other major currencies.
As of early evening in Tokyo, Japanese officials have remained conspicuously silent amid the steady rise of USD/JPY. This unusual lack of verbal intervention has raised expectations that the Japanese government may be hoping traders will interpret the quiet as a warning and refrain from pushing the currency pair beyond 155.00. The silence has contributed to a relatively muted day in broader markets, with the dollar holding steady against the euro and pound and European indices showing only marginal gains.
The US dollar struggled on Wednesday, extending losses incurred against the euro and sterling on Tuesday. The euro and sterling both benefited from positive economic data, while weaker US business growth and easing inflation pressures weighed on the dollar. Meanwhile, the yen remained weak despite intervention warnings from Japanese officials.
