"The week of central banks" continues in earnest, and although investors' attention is focused on the US Fed, on the other side of the world the situation is equally tense. Tomorrow, interest rates will be decided by the BoJ, which is probably put in a heavier position than the Federal Reserve. The Japanese yen against the U.S. dollar has weakened to levels not seen in 20 years, and so far the rhetoric of Chairman Kuroda and other representatives of the Japanese establishment has not inspired optimism. What can we expect from tomorrow's event?
Analyst consensus
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Create account Try a demo Download mobile app Download mobile appThe predictions of analysts surveyed by Bloomberg agency are unequivocal. All the 54 surveyed predict a continuation of the current interest rate, which stands at -0.1%. The survey result itself is not surprising, given the Bank of Japan's actions to date.
Source: Bloomberg
The swap market is currently pricing in an 11% chance of a 10 basis point hike, greatly reducing the chance of a surprise.
Source: Bloomberg
Are we in for a surprise?
Since the BoJ's last meeting, the rhetoric of parts of the Japanese establishment has changed, and hawkish comments have begun to resound more frequently at official meetings and conferences. Japan's latest inflation reading pointed to 3%, the highest level in seven years. However, Toyoaki Nakamura, who sits on the BoJ board and is considered a relatively hawkish policymaker, dismissed suggestions that further forecasts and central bank plans should be updated. Chairman Kuroda recently added that inflation will slow toward 1.5% next year and has no choice but to continue easing. At present, the Japanese Finance Ministry is more in favor of defending the Japanese yen than the BoJ itself (on September 14, Hirokazu Matsuno, Japan's chief cabinet secretary communicated that the government is ready to make any possible decision to stabilize the current volatility on the Japanese yen).
What if not now...
A predictable BoJ, gigantic pressure on the JPY (recall that long positions on pairs to the Japanese yen were a favorite play of global macro funds in the first half of the year) and a hawkish Fed seem to be creating an explosive mix. There is a chance that the BoJ is aware of these factors and when/if it finally decides to change its policy, it will be a sudden and decisive decision.
USD/JPY pair. W1 interval. Source: xStation 5
