Imminent Bank of Japan rate hike pushes USDJPY downward

29 February 2024 57
Imminent Bank of Japan rate hike pushes USDJPY downward

According to Bloomberg, 7 out of 15 Tokyo-based economists said there is a prospect of the Bank of Japan ending its negative interest rates policy in March, with three saying it is almost certain and four assessing it as a possibility.

 

Overnight swap traders, who last year were confident that Japan's central bank would end its negative interest rate policy at its March 18-19 meeting, now rate those odds at 34%.

 

Overall, economists still forecast April as the most likely time for a policy change. The probability of a rate hike by the time of the April meeting is about 85%.

 

That, in turn, is likely to strengthen the yen, which until recently has supported the Japanese stock market, partly because its weakness has helped exporters. Higher yields in Japan will also encourage the country's institutional investors, who are among the biggest players in global bond markets, to keep more money at home.

 

Economists have focused on signals from top Bank of Japan policymakers that they are preparing to raise rates. Last week, Governor Kazuo Ueda expressed confidence in the prospects of achieving stable inflation to normalize policy.

 

Fueling further speculation of a rate hike, Bank of Japan board member Hajime Takata said on Thursday that the bank's price target was finally in sight. His remarks sent the yen rising and government bond futures tumbling.

 

According to Hiroshi Yoshikawa, a professor of economics at the University of Tokyo and a colleague of the BOJ governor, the time has come for the Bank of Japan to normalize policy, as radical monetary easing measures are no longer needed.

 

These comments indicate that a rate hike by the Bank of Japan is inevitable, leading to a weaker USDJPY, and the main question now is the timing of this event: March or April.

 

The downward reversal of USDJPY is technically confirmed by the divergence of the pair chart and RSI indicator on the daily timeframe.

 

The overall recommendation is to sell USDJPY. A profit could be taken at the level of 138.00.

 

A loss could be fixed at the level of 155.00.

This content is for informational purposes only and is not intended to be investing advice.

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