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USD/JPY is consolidating around 151.60 and struggling to break above its November 2023 high of 151.91. Economists at BBH analyze the pair’s outlook.
The threat of FX intervention is offering JPY support. Japan’s Finance Minister Shunichi Suzuki warned again he’s ‘watching forex moves with a high sense of urgency’.
Japan’s February CPI print suggests the bar for an aggressive BoJ tightening cycle remains high. Bottom line: we think it’s only a matter of time before USD/JPY makes new cyclical highs.
The USD/JPY pair finds support after correcting to near 150.27 in the European session on Thursday. The asset rebounds as the US Dollar recovers after refreshing a five-day low. The US Dollar Index (DXY) bounces back from 103.17 as the Federal Reserve’s (Fed) latest economic projections showed that the United States growth rate for 2024 was revised higher to 2.1% from 1.4% forecasted in December’s policy meeting.
There is a region-specific demand in the global markets. Risk-sensitive assets in Europe are facing pressure as the Swiss Nation Bank (SNB) surprisingly reduced interest rates by 25 basis points (bps) to 1.25% while demand for antipodeans and Asian currencies is upbeat. S&P 500 futures have posted significant gains in the London session.
The market sentiment is broadly upbeat as the Fed’s dot plot for the March meeting, released on Wednesday, indicated that three rate cut projections for this year remain alive. In the monetary policy statement, Fed Chair Jerome Powell said that he is confident in the story of easing underlying price pressures despite recent hot inflation readings.
This has led to a sharp increase in speculation that the Fed will begin rate cuts from the June policy meeting. The CME FedWatch tool shows that there is a 74% chance that a rate cut will be announced in June.
Meanwhile, the Japanese Yen rose against the US Dollar after speculation of stealth intervention in the FX domain escalated. Japan's Finance Minister Shunichi Suzuki said, "Currencies must move in a stable manner and that he is closely watching foreign exchange moves with a high sense of urgency."
However, the Japanese Yen struggles to hold strength as the near-term guidance for the monetary policy by the Bank of Japan (BoJ) is still accommodative despite exiting the expansionary policy stance.
USD/JPY took a quick dive into 151.25 after the Federal Reserve (Fed) held its main reference rate at 5.5% as markets had broadly predicted. Risk-hungry investors are shrugging off higher-than-previous growth expectations and interest rate forecasts from the Federal Open Market Committee (FOMC). According to the FOMC, US Gross Domestic Product (GDP) growth through 2024 is going to be slightly higher than forecast, and year-end interest rates are likely to be higher than previously expected.
Despite upside shifts to the Dot Plot, the Fed still expects three rate cuts through 2024 for around 75 basis points, and markets are keeping hopes of near-term rate trimming to begin closer to the middle of the year. Fed Chairman Jerome Powell is due at the bottom of the hour at 18:30 GMT.
Read more: Fed leaves interest rate unchanged at 5.25%-5.5% as forecast
The USD/JPY rallies to multi-year highs in the 151.000s on Wednesday on the back of broad-based US Dollar (USD) strength ahead of the Federal Reserve policy meeting and a “one and done” trade weakening the Japanese Yen (JPY).
The USD/JPY is reaching an intervention zone where the Bank of Japan (BoJ) has historically been known to intervene in FX markets to prop up the Yen, and this could provide an obstacle to more upside for the pair.
The USD/JPY has rallied back up to the level of previous multi-year highs in the 151.000s. Both in October 2022 and 2023 the pair rose to the 151.000s amid JPY weakness and USD strength, however, both times it was pushed back down.
The reason for the reversal at this level has been put down to the fact it is an intervention zone for the BoJ. Above 150.000 the Yen becomes uncomfortably weak for the BoJ and it tends to intervene to prop it up using its FX reserves to buy Yen, according to analysts at MUFG.
“A break of that high (2023 high) could well be accepted in Tokyo but we would still assume intervention would happen quite soon after that, especially with the BoJ’s action this week at least now consistent with Yen buying intervention.”
This suggests USD/JPY could be close to a peak.
The Yen has sold-off after the Bank of Japan (BoJ) ended eight years of negative interest rates and made its first interest rate hike since 2007. On Tuesday, the BoJ raised interest rates from minus 0.1% to a range between 0.0% and 0.1%.
Normally such a move would be expected to strengthen a currency, since higher interest rates attract greater inflows of foreign capital, however, in the case of the Yen the opposite happened.
One reason given for the Yen’s counter-intuitive response is that despite the hike, interest rates in Japan are still so low relative to other countries that JPY remains a favored “funding currency” by international investors. This means they borrow in the Yen (because of the low interest repayments) in order to buy other currencies which pay higher interest rate returns.
“The broad-based view is that the gulf in interest rates between Japan and many other central banks in the G10 space means that the Yen will still be used as a funding currency in a low-volatility world.” Say analysts at ING.
A further reason for the Yen weakness following the BoJ decision is the view that the interest rate hike was just a “one off” rather than the start of the hiking cycle.
“While the BoJ may be able to hike rates again this year, this prospect currently remains highly uncertain.” Say analysts at Rabobank.
Much depends on whether wage gains negotiated by Japanese workers’ unions percolate out to the wider working population, since only 30% of workers belong to unions.
“Assuming the strong pay deals awarded to unionised workers spread out to the 70% of employees who are not in a union, Japan’s real wage growth could soon be turning higher. Policymakers will be hoping that this boosts consumption which in turn supports corporate profitability. This would indicate that the BoJ’s virtuous cycle is complete.” Says Rabobank.
The US Dollar is gaining ground across the board on the back of expectations the Federal Reserve (Fed) will keep interest rates higher for longer in the US, due to stubbornly high inflation. This too is a factor in the USD/JPY’s gains.
There is even speculation that the Fed will reduce the number of rate cuts it expects to make in its Summary of Economic Projections (SEP), a set of forecasts which it publishes at the same time as it announces its monetary policy decision.
In the December SEP the Fed forecast three 0.25% rate hikes in 2024, but analysts at Nordea Bank and Macquarie, to name two, are expecting that to be reduced to two cuts in the March SEP.
Such a move would be even more bullish for USD and USD/JPY.
USD/JPY rallied on what in the end was a widely expected BoJ rate hike. Economists at ING analyze the pair’s outlook.
The broad-based view is that the gulf in interest rates between Japan and many other central banks in the G10 space means that the Yen will still be used as a funding currency in a low-volatility world.
Our baseline view now sees USD/JPY perhaps trading around the 150.00-152.00 area as long as short-term US rates stay firm. When they turn lower over the coming months, USD/JPY should head down to the 145.00 area and probably close to 140.00 later this year when the Fed easing cycle is in full swing (we look for 125 bps of Fed cuts this year).
USD/JPY has risen back above the 150.00 level after the BoJ finally ended its negative interest rate policy. Economists at Rabobank analyze the pair’s outlook.
In today’s policy statement, the BoJ remarked that as ‘indicated by the results of this year's annual spring labour-management wage negotiations to date, it is highly likely that wages will continue to increase steadily this year’. This has supported the Bank’s confidence that its price stability target is in sight.
Assuming the strong pay deals awarded to unionised workers spread out to the 70% of employees who are not in a union, Japan’s real wage growth could soon be turning higher. Policymakers will be hoping that this boosts consumption which in turns supports corporate profitability. This would indicate that the BoJ’s virtuous cycle is complete. So, while the BoJ may be able to hike rates again this year, this prospect currently remains highly uncertain.
Our three-month USD/JPY forecast of 146.00 assumes a first Fed rate cut in June and an improvement in Japanese real wage data. Our 12-month USD/JPY target is 140.00.
USD/JPY rose back above 150.00 after the Bank of Japan abolished negative interest rates and yield curve control. Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes the pair’s outlook.
The BoJ brought the age of negative rates and yield curve control to an end.
I’m disappointed by the market reaction to the BoJ because there’s a good chance this eventually proves to be a pivotal moment for Japan and the BoJ.
USD/JPY 152.00 now becomes a big psychological level going into Wednesday’s FOMC.
Economists at MUFG Bank analyze Japanese Yen (JPY) outlook after the Bank of Japan (BoJ) policy announcement.
We see limits to the extent of Yen selling that can take place from here. Of course, there are greater USD/JPY upside risks over the very short term given this risk event has now passed without any major hawkish surprise and if the FOMC on Wednesday were to drop a DOT in its policy rate profile, US yields will likely jump further and potentially drag USD/JPY to intervention levels.
But over the medium term, we view today’s announcements as hugely significant that is consistent with higher yields and a stronger Yen.
USD/JPY traded back above 150.00 after the BoJ exited its Negative Interest Rate Policy (NIRP). Economists at TD Securities analyze the pair’s outlook.
BoJ exited NIRP and YCC simultaneously and revamped its monetary policy framework around short-term interest rates. The Bank kept its QE program and signalled that it will make nimble responses to any spike in long-run interest rates. Our confidence around an October hike has lessened after Governor Ueda's dovish comments and the recent economic data.
USD/JPY is now hostage to the FOMC decision on Wednesday and any big hawkish surprise from Powell could push USD/JPY beyond its 2022 high at 151.90 which may invoke some strong verbal interventions from the MoF.
USD/JPY is churning chart paper just above the 149.00 handle as investors gear up for a central-bank-heavy week. The Bank of Japan (BoJ) is expected to deliver an update on its negative interest rate regime early in the Tuesday market session after Japan’s spring wage negotiations showed the highest wage increases in over three decades. The Federal Reserve (Fed) is also expected this week and will drop its latest Dot Plot summary of interest rate projections on Wednesday.
The BoJ widely telegraphed that any moves on interest rates would hinge on the results of spring wage negotiations in Japan. Union-negotiated wage increases soared over 5% this year, a 31-year high. Market hopes of rate hikes from the BoJ have pinned into the high side, and uncorroborated reports from the Nikkei news service in Japan insist that the BoJ has already agreed internally to raise interest rates to a 0.0-0.1% range. Japan’s main reference rate is currently near -0.1%. The BoJ is expected to drop its latest rate call sometime early Tuesday.
The Fed will hit markets with its latest rate call on Wednesday, to be followed by another press conference from Fed Chairman Jerome Powell. The Fed will also update its Dot Plot summary of interest rate projections. Rate-cut-hungry markets are increasingly worried the Fed is going to ease back on rate cut expectations. The Fed’s last Dot Plot suggested a median forecast of three rate cuts through 2024, totaling around 75 basis points in rate slashing by the end of the year. Money markets entered 2024 expecting a whopping six or seven rate cuts totaling an eye-watering 175-200 basis points.
As the US economy proves far more resilient than rate watchers expected, and US inflation remains stickier than hoped, rate futures markets have been knocked firmly back, with rate expectations falling to match the Fed’s own Dot Plot in March. According to the CME’s FedWatch Tool, markets were pricing in nearly 70% odds of a first rate cut from the Fed in June as recently as last week. That number has eased to around 50-50 odds on Monday.
US Purchasing Manager Index (PMI) figures are due in the back half of the trading week, as well as Japanese Trade Balance numbers on Thursday followed by Japanese National Consumer Price Index (CPI) follow-up inflation numbers early Friday.
USD/JPY is broadly flat on Monday, testing the waters just north of the 149.00 handle. The pair pushed into the north side of a descending 200-hour Simple Moving Average (SMA) last week, which is settling into the 148.00 region. 151.00 remains a key technical ceiling in the near term, and intraday momentum remains in the hands of the bulls with the pair bouncing into a recovery from 146.50.
The Bank of Japan’s hike or hold decision is a 50-50 affair. Economists at ING analyze how the BoJ policy announcement could impact the Japanese Yen (JPY).
This will be a binary event for the Yen, given that markets are pricing in around a 50-60% implied probability of a hike this week. Expectations are also for a rate hike to be accompanied by the end of the yield curve control policy, even though the BoJ may well keep its bond-buying programme intact to avert excess bond market volatility.
A hold should push USD/JPY, which can cause the pair to test 150.00, while a hike can trigger a correction to levels below 148.00.
Our view remains that USD/JPY will trade lower from the second quarter, but that relies on lower USD rates as much as a BoJ hike.
The USD/JPY pair exhibits strength above the crucial support of 149.00 in the early New York session. The asset clings to gains as market expectations for the Bank of Japan (BoJ) delaying its plans to exit negative interest rates and scrap Yield Curve Control (YCC) have escalated.
Big Japanese firms have rewarded historic wage growth, and inflation has remained sticky above the desired target of 2%, providing confidence to BoJ policymakers to put an end to the expansionary interest rate stance.
The factor that is limiting hopes for BoJ's increasing interest rates is the absence of a catalyst, which could ensure a wage-price spiral. Investors seem confident that the BoJ will end its ultra-loose policy stance in April by raising interest rates from negative 0.1% to 0.1%.
Meanwhile, the market sentiment improves on upbeat China’s Retail Sales and Industrial Production data for February. Higher than anticipated China’s exhibit a strong recovery in its domestic economy. S&P500 futures have generated significant gains in the European session, portraying an improvement in the risk appetite of the market participants.
The US Dollar Index (DXY) trades sideways around 103.40 as investors shift focus to the Federal Reserve's (Fed) interest rate decision, which will be announced on Wednesday. The Fed is expected to keep interest rates unchanged in the range of 5.25%- 5.50%. Investors will focus on the dot plot that presents policymakers’ projections for interest rates over time and economic projections.
Economists at TD Securities discuss the Bank of Japan (BoJ) Interest Rate Decision and their implications for the USD/JPY pair.
The BoJ states that the economy is not strong enough and the Bank needs to be patient judging by the moderation in real household spending and Q4 GDP numbers. Ueda may remark that the BoJ needs to wait for the wage outcomes from small-medium enterprises given that they hire 70% of Japan's workforce. In this instance market is likely to view a July hike as the earliest possible time to move. USD/JPY +1.4%.
The Bank would need to signal to the market that its confidence to hike is high and that its commitment to hike in April is strong. Otherwise, the market will believe the BoJ is likely to be on hold for at least three months. USD/JPY +0.8%.
The significant wage outcome from Rengo gives the BoJ the confidence to move in March. Earlier, the BoJ indicated that the policy adjustment to hike will not be rapid, so hiking a month earlier vs consensus should not be a big deal. We expect the BoJ to officially discontinue the Yield Curve Control (YCC) framework, but retain its Q1 bond buying pace. USD/JPY -1.8%.
BoJ indicates that current financial conditions are too accommodative and may tighten policy further to prevent real rates from going too negative. Possible actions include faster hikes or a surprise announcement of a QT plan. However, both possibilities run counter to recent BoJ messaging to not surprise the market. USD/JPY -2.7%.
Speculation around a BoJ monetary policy shift has been building. Economists at TD Securities bring forward their call for an April hike to March.
Following the positive round of wage increases announced this week and Rengo's announcement today delivering a 5% increase in first round wage negotiations, we believe the BoJ has the information it needs to hike at next week's meeting. Accordingly, we bring forward our call for an April hike to March.
We expect USD/JPY's reaction function to be asymmetric here with a bigger move on delivering a hike (USD/JPY towards 145.00) than on a disappointment (towards 150.00) as even in the latter the BoJ can try to sound hawkish and lay the grounds for an April pivot.
The USD/JPY climbs to 148.80 in the late European session on Friday as the Japanese Yen weakens on expectations that the Bank of Japan (BoJ) will not end the expansionary policy stance in the meeting on Tuesday.
Plenty of fundamentals favor the BoJ quitting negative interest rates. BoJ’s favourite inflation measure, the Consumer Price Index (CPI), excl. fresh food has remained above the 2% target for a longer period. Meanwhile, Japan's biggest companies agreed with labor unions to raise wages by the highest level in 33 years, reported Reuters.
In addition, Japan's Finance Minister Shunichi Suzuki said early Friday that the economy is no longer in deflation and that the government will mobilize all policy steps available to continue the strong trend of wage hikes this year. However, investors hope the BoJ will not go for exiting the prolonged expansionary policy stance as a full-proof plan for the wage-price spiral remains absent.
Market participants will keenly focus on the BoJ’s press conference about when the central bank will scrap its negative interest rates and Yield Curve Control (YCC). Earlier, BoJ Governor Kazuo Ueda said policymakers will debate whether the outlook is bright enough to phase out the massive monetary stimulus.
Meanwhile, market sentiment remains cautious as stubborn United States inflation has dented expectations for the Federal Reserve (Fed) to reduce interest rates from the June meeting. Surprisingly stubborn US Producer Price Index (PPI) data for February is expected to allow Fed policymakers to argue to keep interest rates higher for a longer period.
The US Dollar Index (DXY) is holding near its three-week high of around 103.50. Ten-year US Treasury yields are extending their upside to 4.31%.
Economists at Rabobank analyze the Japanese Yen (JPY) outlook ahead of next week’s BoJ policy meeting.
If the BoJ does exit its negative interest rate policy on March 19, likely, rates will only be raised by 10 or 15 bps. Additionally, at best the tone of the BoJ’s guidance next week is likely to be one of cautious optimism. Importantly, even after the negative policy rate has been consigned to the economic history books, Japan’s monetary policy settings are likely to remain accommodative.
A very guarded tone from the BoJ on the outlook for further policy moves would raise the risk that the JPY could suffer a ‘sell on the fact’ reaction to a BoJ policy change on March 19. That said, despite the risk of a near-term pullback, we continue to see scope for USD/JPY to trend lower to 146.00 on a three-month view.
The Japanese Yen (JPY) got whipsawed following the significantly higher trade union wage hikes. Economists at BBH analyze Yen’s outlook.
Japan’s Rengo, the largest trade union, agreed on total pay increases averaging 5.28% in 2024. This is up from 3.8% in 2023 and higher than the 4.1% rise expected by a Bloomberg survey of economists.
The probability implied by interest rate futures (OIS) of a 10 bps Bank of Japan (BoJ) policy rate hike next week rose briefly to a high around 70% before settling back down around 60%.
In our view, Japan’s improving inflation backdrop and soft economic activity suggest the BoJ is unlikely to normalise the policy rate by more than is currently priced-in over 2024 (25 bps total rate hikes). As such, USD/JPY will likely remain well supported above its 200-DMA at 146.39.
Economists at Standard Chartered expect the Bank of Japan (BoJ) to end its negative interest rate policy (NIRP) in March rather than April, alongside a de facto removal of yield curve control (YCC). They analyze the implications for the Japanese Yen (JPY).
While the JPY has rallied and markets are already pricing in 6 bps of hikes by April, we think the BoJ could surprise with an earlier move in March. Even if the BoJ does not hike in March, the market would expect it to hike in April; market reaction should therefore be limited either way.
The removal of NIRP will not reverse negative yield differentials with other DMs, given that the anticipated policy adjustment in March is unlikely to signal the start of an aggressive rate hiking cycle by the BoJ. Nevertheless, a potential end to YCC accompanied by a greater tolerance by the BoJ for higher long-end yields should ultimately be JPY-positive, especially if our expectation for the Fed and ECB to start cutting rates from June pans out.
In that vein, risks are tilted to the downside for our USD/JPY forecast of 145.00 by the end of Q2-2024.
USD/JPY is trading in the lower 148.00s during the US session on Thursday, up over a third of percentage point after the release of US macroeconomic data.
An unexpected rise in US Producer Prices (PPI) indicates inflation remains stubbornly high and the Federal Reserve (Fed) will need to keep interest rates elevated for longer to combat it.
The maintenance of higher interest rates is positive for the US Dollar (USD) and USD/JPY, because relatively higher interest rates attract greater inflows of foreign capital.
Previously, markets had been pricing in the possibility of the Fed cutting interest rates in May or June, however, following the release of Thursday’s PPI data, the probability of the rate cut in May has dwindled to 9%, according to the CME Group’s FedWatch Tool, which calculates the probabilities of changes in the Fed Funds Rate based on the price of Fed Funds Futures.
The probability of a June rate cut remains relatively high at 62%, but still down from over 70% recorded a few days ago.
Upside for the USD/JPY could be capped by expectations the Bank of Japan (BoJ) will raise interest rates at their March meeting next Tuesday. Such a move would end decades of ultra-loose policy and be the first time since February 2007 the bank has increased interest rates. The expected move comes after higher inflation in Japan and the potential for further price pressures after a series of higher wage agreements between major labor unions and employers.
The Chairman of the Bank of Japan, Kazuo Ueda has consistently said that he will only agree to higher interest rates if the inflation rate sustainably reaches the BoJ’s 2.0% target. Currently headline inflation sits above the target at 2.2% whilst core inflation is at 2.0% – exactly at the target level – from 2.3% in the previous month.
The BoJ has said its decision whether or not to raise rates next Tuesday could hinge on the preliminary results of a survey of big firms' wage talks published on Friday, March 15, according to the Asahi Shimbun.
The USD/JPY pair consolidates in a tight range around 147.70 in Thursday’s European session. The asset struggles to find a direction as investors stay on the sidelines ahead of the United States Producer Price Index (PPI) and Retail Sales data for February, which will be published at 12:30 GMT. The economic data will provide fresh guidance on interest rates as it could influence the inflation outlook.
The monthly Retail Sales are forecasted to have grown by 0.8% after declining at the same pace in January. It is expected that robust demand for automobiles and higher sales at gasoline stations boosted the Retail Sales data. An upbeat Retail Sales data would dampen bets in favor of Federal Reserve (Fed) rate cuts in the June policy meeting.
Currently, the CME FedWatch tool shows that there is a 69% chance that a rate cut will be announced in June. For the March and May policy meeting, the Fed is expected to keep interest rates unchanged in the range of 5.25%-5.50%.
S&P 500 futures generate significant gains in the London session, indicating a sharp improvement in the risk appetite of the market participants. The 10-year US Treasury yields surrender its entire gains, trades around 4.19%. The US Dollar Index (DXY) is broadly sideways around 102.80 ahead of the US data.
Meanwhile, the Japanese Yen remains under pressure as investors hope that the Bank of Japan (BoJ) will postpone its plans to exit negative interest rates. BoJ Ueda said on Tuesday that the economy has recovered on a few economic grounds, though consumption remains weak. Finance Minister Shunichi Suzuki said separately that Japan was not at a stage where it could declare a victory over deflation.
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