USD/JPY outlook: why the BoJ could surprise
For the forthcoming week, jam-packed with central bank meetings and inflation readings, IGTV's Angeline Ong looks at why Japan’s central bank meeting is arguably the most interesting, and what this means for USD/JPY.
(AI Video Summary)
BoJ to decide on interest rates
In the coming week, the Bank of Japan (BoJ) will have a crucial meeting where they may decide to increase interest rates and ditch their negative interest rate policy for the first time in eight years. This move is backed by a positive outcome in annual wage negotiations, known as Shuntō, making it an additional reason to normalise their monetary policy.
JPY value drops
This has caused the value of the Japanese yen to drop, with experts predicting it may reach around ¥148 per US dollar. This would lead to a weekly decrease of over 1% for the yen. However, it's important to note that some surveys suggest there is a 30% chance that the BoJ may postpone the rate hike until June.
The potential increase in interest rates and the end of negative interest rate policy by the BoJ is a significant change in Japan's monetary strategy. It aims to bring back a more typical monetary environment after years of an easy approach. This decision will not only impact the financial markets but also grab the attention of other central banks globally, as it could be a turning point in the world's monetary policies.
Impact of Shuntō
The outcome of Shuntō is a crucial factor in the BoJ's decision. Shuntō is the annual discussion between labor unions and employers in Japan, where they negotiate wage increases. A positive outcome from these talks means that wages are rising, which can lead to higher inflation. In such a scenario, the BoJ might find it necessary to adjust their monetary policies to prevent the economy from overheating.
Investors and traders are closely monitoring the tastylive meeting and its potential impact on the yen. The recent weakening of the yen indicates that market participants expect changes in the BoJ's policies. However, the possibility of delaying the rate hike until June, as some surveys suggest, adds uncertainty to the situation. Traders who deal with the USD/JPY pair should be cautious and keep an eye on any updates from the BoJ to adjust their trading strategies accordingly.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Start trading forex today
Trade the largest and most volatile financial market in the world.
- Spreads start at just 0.6 points on EUR/USD
- Analyse market movements with our essential selection of charts
- Speculate from a range of platforms, including on mobile
Live prices on most popular markets
- Forex
- Shares
- Indices
