On Friday, the Bank of Japan will summarize its meeting this month. In anticipation of this event, the yen is behaving quite calmly: in the pair with the greenback, it follows the American currency, which, in turn, is under pressure amid declining hawkish expectations regarding further actions by the Fed. On the one hand, traders do not expect any unexpected decisions from the Japanese regulator. On the other hand, this will be the first meeting under the leadership of the new head of the Bank of Japan, Kazuo Ueda. Therefore, the April meeting will be far from trivial: market participants will meticulously analyze the rhetoric of the Central Bank chairman, looking for hints of a possible policy review.
Old songs about the main thing
At the end of last week, Reuters published insider information, according to which the Bank of Japan is likely to voice dovish rhetoric at the upcoming meeting. Four informed sources reported that at the April meeting, the regulator will maintain ultra-loose monetary policy and will not make any changes to the target indicators of interest rates and the yield corridor. Representatives of the expert community expressed a similar position in the public domain. In particular, former Deputy Governor of the Bank of Japan Masazumi Wakatabe noted that he “will be very surprised” if the Central Bank changes the current policy of yield curve control in April. Former Vice Minister of Finance for International Affairs Hiroshi Watanabe also stated that the Central Bank currently has no reason to change the parameters of monetary policy.
Ueda himself expressed a similar position. Speaking in Parliament the day before yesterday, he declared the expediency of continuing the yield curve control policy (YCC). According to Ueda, the issue of reviewing YCC will depend on various factors, such as economic conditions and inflation rates. When this will happen and how is unknown. However, he made it clear that in the near future, the Central Bank will keep all QQE parameters unchanged.
Interestingly, unlike his predecessor, the new head of the Bank of Japan hypothetically admits the implementation of a hawkish scenario “if wages and inflation grow more than expected.” In this case, according to Ueda, the Central Bank will tighten monetary policy by raising interest rates.
Yet, it is obvious that this scenario will not be implemented in the foreseeable future. Firstly, Kazuo Ueda expressed confidence on Monday that consumer inflation in Japan “is close to its peak.” He also noted that inflation caused by rising commodity prices is weakening, and the risk of inflation growth caused by the market’s loss of confidence in Japan’s finances is “still small.”
Secondly, according to the latest published data, overall inflation in Japan has slowed down: the March growth rate is the weakest since September 2022. The overall consumer price index increased by 3.2%, with a forecast decline to 2.6%. On the one hand, the indicator significantly exceeded forecast estimates, but on the other hand, it still demonstrated a downward trend after reaching the January peak (4.3%). The core consumer price index, excluding fresh food prices, remained at the February level, at 3.1%, with a forecast decline to 3.0%. The release structure, in particular, indicates that the cost of utility services decreased in March by 2.8%, mainly due to the cheaper electricity (a decrease of 8.5% at once).
Considering the rhetoric voiced by Ueda just the day before yesterday, there is no doubt that he will only repeat the key points at the end of the April meeting. In particular, the new leadership of the Central Bank will continue to adhere to the large-scale monetary easing program, at least in the foreseeable future. Ueda is also likely to reiterate the already voiced thesis that the growth of consumer inflation is mainly related to the rise in import prices rather than the increase in demand. In addition, he will express confidence that price growth will slow down soon and inflation will fall to below 2% by the end of the current fiscal year. The expediency of continuing the yield curve control policy will also be stated.
Conclusions
The Bank of Japan is highly likely to maintain all monetary policy parameters unchanged at the April meeting and voice rhetoric “in the spirit of Haruhiko Kuroda.” As a nod to the hawks, Ueda may again state that the Japanese regulator is capable of considering the option of tightening QQE if inflation starts to accelerate again. This remark is likely to provide temporary support to the yen, but overall, the Bank of Japan is unlikely to provoke a “downwartd rally” for the USD/JPY pair. In the medium term, the yen will continue to follow the greenback, whose well-being will depend on today’s release of U.S. GDP growth data and tomorrow’s report on the growth of the core PCE index.
In such uncertainty, it is advisable to maintain a wait-and-see position for the pair, as the fundamental background for dollar pairs may change significantly by the end of the week, and the USD/JPY pair will not be an exception.
The material has been provided by InstaForex Company – www.instaforex.com
On Friday, the Bank of Japan will summarize its meeting this month. In anticipation of this event, the yen is behaving quite calmly: in the pair with the greenback, it follows the American currency, which, in turn, is under pressure amid declining hawkish expectations regarding further actions by the Fed. On the one hand, traders do not expect any unexpected decisions from the Japanese regulator. On the other hand, this will be the first meeting under the leadership of the new head of the Bank of Japan, Kazuo Ueda. Therefore, the April meeting will be far from trivial: market participants will meticulously analyze the rhetoric of the Central Bank chairman, looking for hints of a possible policy review.
Old songs about the main thing
At the end of last week, Reuters published insider information, according to which the Bank of Japan is likely to voice dovish rhetoric at the upcoming meeting. Four informed sources reported that at the April meeting, the regulator will maintain ultra-loose monetary policy and will not make any changes to the target indicators of interest rates and the yield corridor. Representatives of the expert community expressed a similar position in the public domain. In particular, former Deputy Governor of the Bank of Japan Masazumi Wakatabe noted that he “will be very surprised” if the Central Bank changes the current policy of yield curve control in April. Former Vice Minister of Finance for International Affairs Hiroshi Watanabe also stated that the Central Bank currently has no reason to change the parameters of monetary policy.
Ueda himself expressed a similar position. Speaking in Parliament the day before yesterday, he declared the expediency of continuing the yield curve control policy (YCC). According to Ueda, the issue of reviewing YCC will depend on various factors, such as economic conditions and inflation rates. When this will happen and how is unknown. However, he made it clear that in the near future, the Central Bank will keep all QQE parameters unchanged.
Interestingly, unlike his predecessor, the new head of the Bank of Japan hypothetically admits the implementation of a hawkish scenario “if wages and inflation grow more than expected.” In this case, according to Ueda, the Central Bank will tighten monetary policy by raising interest rates.
Yet, it is obvious that this scenario will not be implemented in the foreseeable future. Firstly, Kazuo Ueda expressed confidence on Monday that consumer inflation in Japan “is close to its peak.” He also noted that inflation caused by rising commodity prices is weakening, and the risk of inflation growth caused by the market’s loss of confidence in Japan’s finances is “still small.”
Secondly, according to the latest published data, overall inflation in Japan has slowed down: the March growth rate is the weakest since September 2022. The overall consumer price index increased by 3.2%, with a forecast decline to 2.6%. On the one hand, the indicator significantly exceeded forecast estimates, but on the other hand, it still demonstrated a downward trend after reaching the January peak (4.3%). The core consumer price index, excluding fresh food prices, remained at the February level, at 3.1%, with a forecast decline to 3.0%. The release structure, in particular, indicates that the cost of utility services decreased in March by 2.8%, mainly due to the cheaper electricity (a decrease of 8.5% at once).
Considering the rhetoric voiced by Ueda just the day before yesterday, there is no doubt that he will only repeat the key points at the end of the April meeting. In particular, the new leadership of the Central Bank will continue to adhere to the large-scale monetary easing program, at least in the foreseeable future. Ueda is also likely to reiterate the already voiced thesis that the growth of consumer inflation is mainly related to the rise in import prices rather than the increase in demand. In addition, he will express confidence that price growth will slow down soon and inflation will fall to below 2% by the end of the current fiscal year. The expediency of continuing the yield curve control policy will also be stated.
Conclusions
The Bank of Japan is highly likely to maintain all monetary policy parameters unchanged at the April meeting and voice rhetoric “in the spirit of Haruhiko Kuroda.” As a nod to the hawks, Ueda may again state that the Japanese regulator is capable of considering the option of tightening QQE if inflation starts to accelerate again. This remark is likely to provide temporary support to the yen, but overall, the Bank of Japan is unlikely to provoke a “downwartd rally” for the USD/JPY pair. In the medium term, the yen will continue to follow the greenback, whose well-being will depend on today’s release of U.S. GDP growth data and tomorrow’s report on the growth of the core PCE index.
In such uncertainty, it is advisable to maintain a wait-and-see position for the pair, as the fundamental background for dollar pairs may change significantly by the end of the week, and the USD/JPY pair will not be an exception.
The material has been provided by InstaForex Company – www.instaforex.com
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