Bank of Japan is scheduled to announce its monetary policy decision during the next Asia-Pacific session. Timing is tentative but announcement is usually made around 3:00 am GMT. Bank is not expected to change the level of interest rates but it does not mean that it won't do any move.
Expectations
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Create account Try a demo Download mobile app Download mobile appBank of Japan is expected to keep its main interest rate unchanged at -0.10% at tomorrow's meeting. Such is a view of economists surveyed by Bloomberg and Reuters as well as pricing on the money markets. Swaps price in just 15% chance of a 10 basis point rate hike. The first full hike is currently priced in for March 2024. There is a growing feeling that the Bank of Japan may decide to make a move quicker than that. However, while rate hike at the coming meeting is unlikely, the Bank of Japan may announce some other actions.
Source: Bloomberg Finance LP
Yields keep pushing higher
An increase in yields can be seen all around the world and Japan is no exception. Bank of Japan maintained a 0% target on 10-year government yield with a 50 bps tolerance band. However, continued increase in yields caused BoJ to relax the band and allow for upside deviations of up to 100 bp. 10-year yield is currently sitting slightly below 0.90%. Maintaining such a band in a rising yield environment is costly and it cannot be ruled out that it will be relaxed further to allow long-term yields to rise above 1%.
Source: Bloomberg Finance LP, XTB Research
A look at JPY
Japanese yen has been under pressure recently. USDJPY is trading near 150.00 - a level that was associated with Bank of Japan interventions. Tests of this level have been met with rapid reversals in the past therefore it could be a nice spot for a pullback. A hawkish surprise from Bank of Japan - for example relaxing band around target yield - should be JPY-positive, especially if it is accompanied with a hawkish guidance on rates. In such a scenario, USDJPY could see a strong pullback from current levels towards the lower limit of the channel. On the other hand, failure to deliver a hawkish message would likely trigger JPY weakness with pair pushing above 150.00 area.
Source: xStation5
