Tomorrow's Bank of Japan probable rate hike to weaken USDJPY

18 March 2024 56
Tomorrow's Bank of Japan probable rate hike to weaken USDJPY

Bank of Japan Governor Kazuo Ueda and his board have one more day to decide if it’s time for the nation’s first interest rate hike in 17 years amid simmering speculation that it will proceed.

 

Some 90% of BOJ watchers sees the risk of authorities ending the negative rate on Tuesday at the meeting’s conclusion, with that likelihood bolstered after the nation’s largest union group announced first-round results to annual wage negotiations that far exceeded expectations.

 

The federation of unions, Rengo, announced on Friday that its members had secured wage increases of 5.28% on average, far above the 4.1% predicted by economists surveyed by Bloomberg, and marking the biggest gains in more than 30 years.

 

Worker pay gains play a critical role as the BOJ pursues a goal of achieving 2% sustainable inflation. Increases that outpace inflation could be the catalyst that sets in motion a virtuous cycle in which wage growth feeds into demand-led price gains.

 

Japan’s key inflation gauge has stayed at or above BOJ’s 2% inflation target for 22 months.

 

Markets are poised to support the BOJ's decision, with Tuesday's rate hike potentially providing short-term support to the yen.

 

Even though wages are rising, Ueda has the option of waiting another month. Unlike his global peers, the BOJ governor faces little risk of the sort of runaway inflation that prompted aggressive tightening in the US and Europe.

 

Data due Friday are expected to show consumer price growth accelerated in February, but the pace is forecast to stay under 3%.

 

Those touting April as the likely timing maintain there’s no rush. The bank will get a large volume of data just ahead of the April 25-26 gathering, making that meeting an opportune time to move.

 

Some 67% of surveyed economists predict the new policy rate setting will be between 0% and 0.1%. Another 16% predict it will be around 0%, while 10% think it will be set at about 0.1%.

 

There could be mixed views on the board. If Ueda pushes for a landmark decision to lift off tomorrow, he may not get a unanimous consensus. So far he’s refrained from dropping clear hints on his preferred timing, merely repeating his pledge to take appropriate steps after a comprehensive review of the economy. If the rate hike decision is made tomorrow, it will weaken the USDJPY pair sharply.

 

From a technical point of view, the USDJPY pair has the support at 148.2, which could be a downside target.

 

The overall recommendation is to sell USDJPY provided that the Bank of Japan raises its key rate at tomorrow's meeting.

Take profit at the level of 148.20.

Set a stop loss at the level of 150.30.

 

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

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