The Bank of Japan has started its two-day meeting and the announcement will be made early tomorrow morning (London time). Bank officials have already tempered expectations for rate hikes this month, saying such a move is still premature. Still, with investors actively betting on an end to negative rates in January, the language of this meeting will be key to the yen’s near-term performance.
Governor Kazuo Ueda (pictured) faces the choice of keeping the message largely unchanged and disappointing tough market expectations, or offering clues about the state of the rate hike discussion and potentially suggesting a tentative timing. The yen’s recent strong performance as global rates fell is surely taking some pressure off, but the data is starting to look increasingly inconsistent with the Bank of Japan’s ultra-dovish stance.
Our economist is still leaning towards 2Q24 for the first hike, and if that is also the BoJ’s preference, then it may be too early for a real change in the dovish message later, and the yen is at risk of a correction down. However, the chances of an increase in January, when new economic projections are published, are not negligible and depend on the data as well as the performance of the JPY.
Expect any aggressive surprises in tomorrow’s call to push USD/JPY close to the 140 support, while a flat message may see the pair return to 145, where we could see selling interest if dollar momentum proves weak.