Tag: CentralBanks

  • Will cut interest rates and RRR at a proper time

    Will cut interest rates and RRR at a proper time


    The People’s Bank of China (PBOC) said on Thursday that they “will cut interest rates and Reserve Requirement Ratio (RRR) at a proper time.”

    Additional takeaways

    Will keep liquidity ample.

    Will guide social financing cost to lower.

    Will strenghthen expectation guidance, maintain yuan exchange rate basically stable at a reasonable and balanced level.

    Market reaction

    At the time of writing, AUD/USD is down 0.55% on the day, trading at 0.6285.

    PBOC FAQs

    The primary monetary policy objectives of the People’s Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.

    The PBoC is owned by the state of the People’s Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.

    Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.

    Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.

     



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  • Rate decisions will look at jobs, economic activity

    Rate decisions will look at jobs, economic activity


    Federal Reserve Governor Michelle Bowman, regarded as one of the bank’s most hawkish policymakers, indicated that she might place greater emphasis on labour market indicators when considering future policy decisions.

    Key Quotes

    Labor market, economic activity will become a larger factor in US central bank policy discussions going forward.

    Shocks, structural changes since Covid-19 pandemic may have masked transmission of Fed policy to the economy.



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  • Don’t have a preset idea in mind on the pace of future rate hikes

    Don’t have a preset idea in mind on the pace of future rate hikes


    Bank of Japan (BoJ) Deputy Governor Shinichi Uchida said on Wednesday, I “don’t have a preset idea in mind on the pace of future rate hikes.”

    Further comments

    Don’t have a preset idea in mind on the pace of future rate hikes.

    It is not as if we will be raising rates at each policy meeting.

    Wage is key to gauging Japan’s trend inflation.

    Must be vigilant to how price moves for goods people buy frequently affect inflation expectations.

    Will debate policy decision at each meeting looking at economic, price developments.

    Market reaction

    At press time, USD/JPY holds minor gains near 149.80 following these comments.

    Bank of Japan FAQs

    The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

    The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

    The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

    A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

     



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  • Japan’s economy is on a moderate recovery path

    Japan’s economy is on a moderate recovery path


    Bank of Japan Deputy Governor Shinichi Uchida said on Friday that Japan’s economy is experiencing a moderate recovery, though some weaknesses persist.

    Key quotes

    Japan’s economy is experiencing a moderate recovery, though some weaknesses persist.
    The underlying inflation rate is gradually rising toward the 2% target.
    The Bank of Japan’s JGB holdings continue to provide a strong monetary easing effect.

    Market reaction 

    At the time of writing, the USD/JPY pair is trading 0.07% higher on the day to trade at 149.78.

    Bank of Japan FAQs

    The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

    The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

    The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

    A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

     



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  • Trade and inmigration pose risks to inflation

    Trade and inmigration pose risks to inflation


    At last month’s meeting, Fed officials debated whether it might be wise to slow or even pause the reduction of their balance sheet holdings, given that renewed concerns over the federal debt ceiling have come back into play.

    In addition, the Minutes showed the staff’s economic outlook remained largely unchanged from December.

    Key highlights

    All participants at Fed’s January 28-29 meeting saw it as appropriate to hold target interest rate unchanged.

    Some participants cited potential changes in trade and immigration policy as having potential to hinder disinflation process.

    Vast majority of participants judged risks to dual mandate objectives were roughly in balance.

    A couple of participants said it appeared that risks to achieving inflation mandate were greater than risks to employment mandate.

    Various participants said it may be appropriate to consider pausing or slowing balance sheet runoff until resolution of debt ceiling dynamics.

    Many participants said after conclusion of balance sheet runoff it would be appropriate to structure asset purchases to move maturity composition closer to outstanding stock of Treasury debt.

    Fed survey respondents saw balance sheet runoff process concluding by mid-2025, slightly later than previously expected.

    Fed staff’s economic outlook largely unchanged from the one provided at December meeting.

    In initial discussions of framework review, policymakers expressed openness to changing elements introduced in 2020 document.

    This section below was published as a preview of the FOMC Minutes of the December 17-18 meeting at 18:00 GMT. 

    • The Minutes of the Fed’s January 28-29 policy meeting will be published on Wednesday.
    • Details surrounding the discussions on the decision to keep policy settings unchanged will be scrutinized by investors.
    • Markets see virtually no chance of a 25 bps Fed rate cut in March. 

    The Minutes of the United States (US) Federal Reserve’s (Fed) January 28-29 monetary policy meeting will be published on Wednesday at 19:00 GMT. Policymakers decided to maintain the policy rate at the range of 4.25%-4.5% at the first meeting of 2025. However, the central bank removed earlier language suggesting inflation had “made progress” toward its 2% target, instead stating that the pace of price increases “remains elevated.”

    Jerome Powell and co decided to hold policy settings unchanged after January meeting

    The Federal Open Market Committee (FOMC) voted unanimously to keep the policy rate unchanged. The statement showed that officials expressed confidence that progress in reducing inflation will likely resume later this year but emphasized the need to pause and await further data to confirm this outlook.

    In the post-meeting press conference, Fed Chairman Jerome Powell reiterated that they don’t need to be in a hurry to make any adjustments to the policy. 

    Commenting on the policy outlook earlier in the week, Philadelphia Fed President Patrick Harker said that the current economy argues for a steady policy for now. Similarly, Atlanta Fed President Raphael Bostic noted that the need for patience suggests that the next rate cut could happen later to give more time for information.

    When will FOMC Minutes be released and how could it affect the US Dollar?

    The FOMC will release the minutes of the January 28-29 policy meeting at 19:00 GMT on Wednesday. Investors will scrutinize the discussions surrounding the policy outlook.

    In case the publication shows that policymakers are willing to wait until the second half of the year before reconsidering rate cuts, the immediate reaction could help the US Dollar (USD) gather strength against its rivals. On the other hand, the market reaction could remain subdued and short-lived if the document repeats that officials will adopt a patient approach to further policy easing without providing any fresh clues on the timing.

    According to the CME FedWatch Tool, markets currently see virtually no chance of a 25 basis point rate cut in March. Moreover, they price in a more than 80% probability of another policy hold in May. Hence, the market positioning suggests that the publication would need to offer very clearly hawkish language to provide a steady boost to the USD.

    Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief outlook for the USD Index:

    “The Relative Strength Index (RSI) indicator on the daily chart stays well below 50 and the index remains below the 20-day Simple Moving Average (SMA), highlighting a bearish bias in the short term.”

    “On the downside, 106.30-106.00 aligns as a key support area, where the 100-day SMA and the Fibonacci 38.2% retracement of the October 2024 – January 2025 uptrend are located. If this support area fails, 105.00-104.90 (200-day SMA, Fibonacci 50% retracement) could be set as the next bearish target. Looking north, resistances could be spotted at 107.50-107.70 (20-day SMA, Fibonacci 23.6% retracement), 108.00 (50-day SMA) and 109.00 (round level).”

    Fed FAQs

    Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

    The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

    In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

    Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

    Inflation FAQs

    Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

    The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

    Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

    Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

     



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  • Fed Chair speaks after higher US CPI in January

    Fed Chair speaks after higher US CPI in January


    Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), said in his semiannual Monetary Policy Report, this time before the House Financial Services Committee, that there is still job to be done regarding inflation.

     

    Key highlights

    “No changes to own commitment that will not resign if asked by Trump.”

    “The Fed’s last policy framework did not limit the Fed’s response to inflation”.

    “The Fed makes its decisions based on what’s happening in the economy.”

    “We have ways to go on shrinking the balance sheet.”

    “We want to keep policy restrictive for now.”

    “We are close but not there on inflation”.

    “It is possible that the Fed would have to move the policy rate on tariffs.”

     

    This section below was published following Federal Reserve Chairman Jerome Powell’s testimony at 15:00 GMT on February 11:

    Powell testimony key takeaways

    “Policy is well-positioned to deal with risks, uncertainties.”

    “We can maintain policy restraint for longer if economy remains strong and inflation does not move toward 2%.”

    “We can ease policy if labor market unexpectedly weakens or inflation falls more quickly than expected.”

    “The US is economy strong overall; inflation is closer to 2% goal but still somewhat elevated.”

    “Fed’s framework review will not include a focus on inflation target, which will remain 2%.”

    “Fed will wrap up framework review by late summer.”

    “We are in a pretty good place with this economy.”

    “Want to make more progress on inflation.”

    “Don’t see any reason to be in a hurry.”

    “We are not in recession.”

    “Not for the Fed to comment on tariff policy”

    “Clearly not allowed under the law for President to remove a Fed board member.”

    “Would use quantitative easing only when rates are at zero.”

    “Believe neutral rate has risen from very low pre-pandemic level.”

    “A sharp increase in M2 might cause some inflation.”

    This section below was published as a preview of Federal Reserve Chairman Jerome Powell’s testimony at 10:00 GMT.

    • Jerome Powell’s testimony in the US Congress will be a top-tier market-moving event this week.
    • New clues on the Federal Reserve interest rate path are awaited.
    • US Dollar, stock markets and other asset classes could see big swings with the Fed Chair’s words. 

    Jerome Powell, Chairman of the United States (US) Federal Reserve (Fed), will deliver the Semi-Annual Monetary Policy Report and testify before the Senate Banking Committee on Tuesday. The hearing, entitled “The Semi-Annual Monetary Policy Report to the Congress,” will start at 15:00 GMT and it will have the full attention of all financial market players. 

    Jerome Powell is expected to address the main takeaways of the Fed’s Semi-Annual Federal Reserve Monetary Policy Report, published last Friday. In that report, the Fed noted that financial conditions continue to appear “somewhat restrictive” and reiterated that policymakers will weigh data when deciding on future policy moves.

    In a long Q&A session, US representatives are expected to ask Powell about the interest rate path, inflation developments, and the economic outlook. They are also very likely to inquire about how US President Donald Trump’s policies could influence prices, growth prospects and the monetary policy moving forward.

    The CME Group FedWatch Tool shows that markets price in a less-than-10% probability that the Fed will lower the policy rate by 25 basis points (bps) in March after the latest employment report reaffirmed tight conditions in the labor market.

    In January, Nonfarm Payrolls (NFP) rose 143,000. Although this reading came in below the market expectation of 170,000, the US Bureau of Labor Statistics (BLS) announced upward revisions to previous NFP prints. “The change in total Nonfarm Payroll employment for November was revised up by 49,000, from +212,000 to +261,000, and the change for December was revised up by 51,000, from +256,000 to +307,000. With these revisions, employment in November and December combined is 100,000 higher than previously reported,” the BLS noted in its press release.

    The market positioning suggests that the US Dollar (USD) has little room left on the upside even if Powell confirms that they will hold the policy unchanged in March. On the other hand, the USD could come under selling pressure in case Powell adopts an optimistic tone about the inflation outlook and leaves the door open for a rate reduction at the next policy meeting. 

    About Jerome Powell (via Federalreserve.gov)

    “Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System’s principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028.”

     



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  • PBOC sets USD/CNY reference rate at 7.1707 vs. 7.1699 previous

    PBOC sets USD/CNY reference rate at 7.1707 vs. 7.1699 previous


    On Monday, the People’s Bank of China (PBOC) set the USD/CNY central rate for the trading session ahead at 7.1707 as compared to Friday’s fix of 7.1699 and 7.3050 Reuters estimates.

    PBOC FAQs

    The primary monetary policy objectives of the People’s Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.

    The PBoC is owned by the state of the People’s Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.

    Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.

    Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.

     



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  • Fed’s Jefferson: Happy to keep Fed Funds on hold at current rate

    Fed’s Jefferson: Happy to keep Fed Funds on hold at current rate


    Federal Reserve Vice Chair Philip Jefferson said on Thursday that he is happy to keep the Fed Funds on hold at the current level, adding that he will wait to see the net effect of Trump policies.

    Key quotes

    Waits to see net effect of Trump policies. 

    Examining overall impact of Trump administration on policy goals needed. 

    Opts to maintain current interest rates for the time being. 

    Content with current policy level until totality of impacts better understood.  

    Sees Fed’s ability to be patient with the economy in a good place.  

    Fed’s rate still restrictive even with 100 bp drop. 

    Policy rate remains restrictive for the economy. 

    Market reaction

    The US Dollar Index (DXY) is trading unchanged on the day at 107.60, as of writing.



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  • Fed Chair speaks after higher US CPI in January

    Can’t ignore threats to supply chains like tariffs


    Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee noted on Wednesday that it is difficult for central banks to generally estimate the fallout of things like tariffs, and could complicate the Fed’s ability to accomplish its task of bringing inflation down to 2%.

    Key highlights

    If inflation rises or progress stalls, US central bank will need to figure out if it’s from overheating or tariffs.

    Inflation has come down and is approaching Fed’s 2% goal.

    US has a strong economy and plausibly full employment.

    Distinguishing the cause of any inflation will be critical for deciding when or even if the Fed should act.

    COVID-19 pandemic experience shows supply chain disruptions can have a material impact on inflation.

    Ignoring potential consequences of new threats to supply chains, like tariffs, would be a mistake.

    Opinions differ widely on how much tariffs would get passed into prices, suppliers may have to eat the cost.

    Tariffs this time may be broader and higher than in 2018; impact could be larger and longer-lasting.



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  • Don’t have a preset idea in mind on the pace of future rate hikes

    How will the BoJ’s anticipated interest rate hike affect USD/JPY?


    • The Bank of Japan is set to hike interest rates to 0.50% on Friday.
    • All eyes will remain on the language in the policy statement and Governor Ueda’s press conference.
    • The Japanese Yen could witness intense volatility on the BoJ policy announcements.

    The Bank of Japan (BoJ) is widely expected to raise the short-term interest rate from 0.25% to a 17-year high of 0.50% in January, following the conclusion of its two-day monetary policy review on Friday.

    The Japanese Yen (JPY) is set to rock on the BoJ policy announcements as investors seek to find fresh clues on the central bank’s next policy move.  

    What to expect from the BoJ interest rate decision?

    The BoJ will likely begin 2025 with some action as it remains on track to revive its rate-hiking cycle after pausing for three consecutive meetings. In July 2024, the Japanese central bank unexpectedly raised rates by 15 basis points (bps) from 0.1% to 0.25%.

    Markets speculated that a slew of hotter-than-expected inflation readings, the ongoing depreciation of the JPY and a fiscal budget strengthened the case for a BoJ rate hike at the January meeting.  

    Tokyo annual Consumer Price Index (CPI) rose 3% in November, up from 2.6% in October. Core inflation, which excludes food and energy costs, increased by 2.4% in the same period after reporting a 2.2% growth in October. Tokyo’s inflation numbers are widely considered a leading indicator of nationwide trends.

    Meanwhile, Japan’s annual Producer Price Index (PPI) remained at 3.8% in December, driven primarily by high food prices, particularly a 31.8% increase in agricultural goods costs. Separately, the Japanese Cabinet approved a historic budget of $732 billion for the fiscal year beginning in April while restricting new bond issuance to its lowest level in 17 years, per Reuters. 

    The recent hawkish commentary from BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino also pointed to a likely rate hike this week. Ueda said on January 16 that the board members “will debate at next week’s meeting whether to hike rates.” In his speech on January 14, Himino noted: “Japan’s inflation expectations have gradually heightened, now around 1.5%. Japan’s economy is roughly moving in line with our scenario projecting underlying inflation, inflation expectations to both move around 2%.”

    With a rate hike almost a given, the language of the policy statement and Governor Ueda’s post-policy meeting press conference, due at 06:30 GMT, will help determine the path of the Bank’s next policy move.

    The BoJ is also set to publish its quarterly Outlook Report and is expected to raise its inflation projections amid the gradual depreciation of the Japanese Yen and a recent surge in the cost of rice, Bloomberg reported, citing people familiar with the matter.  

    Analysts at BBH said: “Two-day Bank of Japan meeting ends Friday with an expected 25 bp hike to 0.5%. Markets have firmed up the odds of a hike over the past week to around 85% after BOJ officials expressed more confidence on wage growth gathering momentum.”

    “In our view, the bar for a hawkish surprise is high because the BoJ will want to avoid unsettling the markets as it did back in July. As such, the Yen is likely to remain under downside pressure as the markets continue to price in the policy rate to peak around 1% over the next two years, the analysts added. “

    How could the Bank of Japan’s interest rate decision affect USD/JPY?

    Reuters reported last week, citing sources familiar with the central bank’s thinking, the BoJ is expected to maintain its hawkish stance while raising rates. The hawkish hike could be influenced by global financial market developments, such as United States (US) President Donald Trump’s return to the White House.

    If the BoJ struggles to provide consistent guidance on the next policy move, reiterating that it will remain data-dependent and make a decision on a meeting-by-meeting basis, the Japanese Yen is likely to resume its downslide against the US Dollar (USD).

    USD/JPY could fall hard if the BoJ hints at a March rate hike while expressing increased concerns over inflation.

    Any knee-jerk reaction to the BoJ policy announcements could be temporary heading into Governor Ueda’s presser. Investors will continue to pay close attention to US President Donald Trump’s tariff talks, which trigger a big market reaction.

    From a technical perspective, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes: “USD/JPY remains confined between the 21-day Simple Moving Average (SMA) and the 50-day variant in the run-up to the BoJ showdown. However, the 14-day Relative Strength Index (RSI) sits just above 50, suggesting that the pair could break the consolidative phase to the upside.”

    “A hawkish BoJ hike could revive the USD/JPY correction from six-month highs of 158.88, smashing the pair toward the 200-day SMA at 152.85. The next support is seen at the 100-day SMA of 151.59. Further declines could challenge the 151.00 round level. Alternatively, buyers must yield a sustained break above the 21-day SMA at 157.13 to resume the uptrend toward the multi-month highs of 158.88. Buyers will then target the 160.00 psychological level,” Dhwani adds.

    Economic Indicator

    BoJ Monetary Policy Statement

    At the end of each of its eight policy meetings, the Policy Board of the Bank of Japan (BoJ) releases an official monetary policy statement explaining its policy decision. By communicating the committee’s decision as well as its view on the economic outlook and the fall of the committee’s votes regarding whether interest rates or other policy tools should be adjusted, the statement gives clues as to future changes in monetary policy. The statement may influence the volatility of the Japanese Yen (JPY) and determine a short-term positive or negative trend. A hawkish view is considered bullish for JPY, whereas a dovish view is considered bearish.

    Read more.

    Next release: Fri Jan 24, 2025 03:00

    Frequency: Irregular

    Consensus: –

    Previous: –

    Source: Bank of Japan

    Bank of Japan FAQs

    The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

    The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

    The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

    A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

     



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