USD/JPY outlook: why the BoJ could surprise
For the forthcoming week, jam-packed with central bank meetings and inflation readings, IGTV's Angeline Ong looks at why Japan’s central bank meeting is arguably the most interesting, and what this means for USD/JPY.
(AI Video Summary)
BoJ to decide on interest rates
In the coming week, the Bank of Japan (BoJ) will have a crucial meeting where they may decide to increase interest rates and ditch their negative interest rate policy for the first time in eight years. This move is backed by a positive outcome in annual wage negotiations, known as Shuntō, making it an additional reason to normalise their monetary policy.
JPY value drops
This has caused the value of the Japanese yen to drop, with experts predicting it may reach around ¥148 per US dollar. This would lead to a weekly decrease of over 1% for the yen. However, it's important to note that some surveys suggest there is a 30% chance that the BoJ may postpone the rate hike until June.
The potential increase in interest rates and the end of negative interest rate policy by the BoJ is a significant change in Japan's monetary strategy. It aims to bring back a more typical monetary environment after years of an easy approach. This decision will not only impact the financial markets but also grab the attention of other central banks globally, as it could be a turning point in the world's monetary policies.
Impact of Shuntō
The outcome of Shuntō is a crucial factor in the BoJ's decision. Shuntō is the annual discussion between labor unions and employers in Japan, where they negotiate wage increases. A positive outcome from these talks means that wages are rising, which can lead to higher inflation. In such a scenario, the BoJ might find it necessary to adjust their monetary policies to prevent the economy from overheating.
Investors and traders are closely monitoring the tastylive meeting and its potential impact on the yen. The recent weakening of the yen indicates that market participants expect changes in the BoJ's policies. However, the possibility of delaying the rate hike until June, as some surveys suggest, adds uncertainty to the situation. Traders who deal with the USD/JPY pair should be cautious and keep an eye on any updates from the BoJ to adjust their trading strategies accordingly.
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