According to major market participants, the Bank of Japan (BOJ) is likely to raise interest rates as early as April, and investors are increasingly focused on the outcome of spring wage talks.
BOJ Governor Kazuo Ueda said at yesterday's press conference that confidence in the outlook for rate hikes is gradually increasing, and he would consider ending negative rates if the price target becomes clear.
The decision to keep rates and yield-curve-control unchanged on Tuesday was in line with economists' expectations for the status quo after a powerful earthquake that hit Japan on the first day of the year and Ueda's dovish remarks in late December.
As an example, here are some opinions on yesterday's press conference of the BOJ.
Charu Chanana, market strategist for Saxo Capital Markets Pte:
“Ueda's change in tone is evident, and he supports the upcoming meeting in April. Nevertheless, the Japanese yen is likely to struggle to sustain this rise in the near term given that US yields are expected to remain volatile as markets begin to assess Trump's presidency and US economic data remains robust.”
Naka Matsuzawa, chief strategist at Nomura Securities Co:
“Ueda's press release was more aggressive than the forecast itself, and it seems as if the BOJ is moving closer to a victory call to achieve the 2% inflation target and put an end to NIRP. The market should see that the probability of a rate hike in April is now clearly above 50%.”
Tsutomu Soma, a bond and currency trader at Monex in Tokyo:
“Bank of Japan Governor Kazuo Ueda's remarks seem to suggest a step closer to removing the negative interest rate in the near future. However, the central bank probably wants to see the results of wage increases to assess whether this is a sustainable trend, so it will probably not rush to take actions.”
Tsuyoshi Ueno, a senior economist at NLI Research Institute in Tokyo:
“Market movements reflect expectations that there will be a shift toward normalization in the near future, including an end to the negative-rate policy. As March approaches, expectations of imminent BOJ policy normalization will rise further.”
“The BOJ needs to be less adaptive, while the Fed will have to turn in the opposite direction. Whether the BOJ moves in March or April or the Fed pivots, rates in Japan and the US will be heading in opposite directions. This means that USDJPY is likely to fall to 140 or even lower by summer.”
The overall recommendation is to sell USDYPY with a target at the price level of 146,400. A Stop-loss could be set at the level of 149,500.
This content is for informational purposes only and is not intended to be investing advice.
