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FX | Economy | Asia-Pacific

FX Focus - JPY: Spotlight Shifts to Yen Ahead of BoJ Meeting

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Forecast Spot 0 - 3m 6 - 12m Long-term
USDJPY 147.05 150.00 138.00 130.00

*Forecasts as of February 2024.


  • Over the next 2 weeks, attention will likely be on the Japanese Yen (JPY) ahead of the pivotal Bank of Japan (BoJ) meeting on March 19th. The BoJ board seems to strongly indicate that the time is near for a decision on abandoning yield curve control (YCC) altogether and exiting negative interest rates (NIRP) for the first time since 2016. These signals seem to be coming not only from BoJ Governor Ueda when he recently told Japanese lawmakers that “the possibility of realizing the 2 percent inflation target is rising little by little" (a precondition for changes to BoJ’s monetary policy) but by others within the 9 member BoJ board such as Junko Nakagawa saying that “Japan’s economy and inflation are steadily making progress toward meeting the stable 2% inflation target……there are signs of a clear shift in businesses’ behavior for setting wages”, and Hajime Takata using even stronger words to say that the price target is “finally” coming into sight.
  • Japanese fundamentals appears to back the use of more hawkish language with data showing Japan’s actual wage growth accelerating at its fastest clip since June 2023 with gathering evidence that Japanese businesses can pass higher labor costs on in service prices as services take up a larger share of core CPI inflation. With Japan’s biggest union federation Rengo demanding its biggest pay hike since 1993 at 5.85%, this is only likely to make Japanese inflation stickier. Meanwhile, a sharp upward revision in business spending data within the 2nd estimate of Q4’23 GDP shows Japan did not enter a technical recession in H2’23 after all (reversing the outcome of Q4 GDP’s first estimate).
  • Japan rates markets price a 10bp hike from the BoJ at its March 19th meeting to raise the overnight rate from -0.1% to 0.0% and a cash rate of 0.25% by year-end though there is a risk that the move could be delayed to BoJ’s April meeting when it will release a comprehensive quarterly update of its Japanese economic forecasts. But whether it is March or April, markets already appear to be positioning for BoJ’s move with the latest Commodity Futures Trading Commission report showing hedge funds already trimming short positions in JPY while other reports show asset managers pulling back on bearish views on JPY. Ultimately a formal announcement to abandon YCC altogether and a 10bp rise in rates is not much in itself as the BoJ has already removed key elements of YCC in earlier meetings and a likely 10bp hike still leaves US – Japan rate differentials at a record wide in favor of USD. However, the signaling is far more important here as it indicates the BoJ no longer thinks current ultra-accommodative financial conditions are appropriate for Japan’s economic settings which signals that the BoJ could progressively tighten financial conditions through the year. When combined with the outlook for lower US rates as the Federal Reserve possibly starts its rate cut cycle by mid-year, it could potentially result in a more powerful impact in strengthening JPY vs USD  than would ordinarily be the case.         


USDJPY – JPY trading at near record lows ahead of BoJ’s pivotal March board meeting 

Source: Bloomberg, March 9, 2024

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