Bank of Japan (BoJ): Dovish hike as the takeaway

Dovish hike as the takeaway, as BoJ stopped short of guiding for further tightening

The BoJ raised its short-term interest rates to around 0% to 0.1% from previous -0.1% with a 7-2 majority, indicating an exit from its negative interest rate policy (NIRP) in today’s meeting. This marked the nation's first interest rate hike in 17 years. But with recent media leaks guiding for an end to negative rates and the scrapping of its yield curve control (YCC) policy, market participants are more or less prepared for this outcome, with managed expectations potentially prompting some sell-the-news in place.

More importantly, the central bank has also stopped short of guiding for further tightening in what could be deemed as a dovish hike. The tone that the central bank is in no rush in terms of policy normalisation may serve as a disappointment to hawkish BoJ traders, who were expecting a quicker pace of unwinding given the trend of inflation and wage data thus far.

The call for more patience may reflect policymakers’ reservations around prevailing economic risks, along with further wait-and-see for the virtuous cycle between wages and prices to play out. The central bank did put an end to its YCC policy and exchange traded funds (ETF) purchases, but will continue its Japanese Government Bond (JGB) purchases with “broadly the same amount as before” – a sign for easy monetary conditions to remain for longer.

Perhaps the dovish takeaway from today’s meeting is more evident in the current market rate expectations, which saw a recalibration in broad consensus to price for rates to remain unchanged, at least over the next three BoJ meetings. Attention will now be turned to the press conference from BoJ Governor Kazuo Ueda, who will have the opportunity to clarify on the updated policy settings and what factors may prompt the central bank to take on a quicker pace of rate rises.

USD/JPY: Back to reclaim its key 150.00 level

A less hawkish-than-expected outcome in the updated policy settings have paved the way for the USD/JPY to reclaim its key psychological 150.00 level, with the pair almost unwinding all of its month-to-date losses. The bounce comes after buyers found support at the upper edge of its daily Ichimoku Cloud pattern to keep the upward trend intact.

Ahead, immediate resistance now stands at the 150.84 level, where it marked a previous period of consolidation in February. On the downside, the 145.54 level may serve as a crucial support to hold.

Nikkei 225: Back on the rise after BoJ meeting outcome

Following a short-term retracement, the Nikkei 225 index is back on the rise in today’s session, touching its one-week high towards the 39,900 level. This comes after its daily relative strength index (RSI) has managed to defend the key 50 level, as an attempt from buyers to keep the upward bias intact. Further upside may leave its all-time high at the 40,630 level on watch to overcome. On the downside, the 38,200 level may serve as immediate support to hold, where a 23.6% Fibonacci retracement level stands.