BOJ to Hold Rates With Focus on Hawkish Signals to Buoy Yen
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The Bank of Japan is expected to leave its benchmark interest rate unchanged as the yen trades around a 34-year low. Governor Kazuo Ueda and the board members are set to keep the short-term rate around 0% to 0.1%. The weak yen could spur cost-push inflation, and some executives at businesses that benefited from the depreciation of the currency have started to express concerns about the overall impact. The BOJ may send a clearer signal of policy normalization this time around, with a possible front-loading of a rate hike in June or July. The BOJ's latest quarterly inflation forecasts and its characterization of the risks to its view are among the easiest ways the central bank could flick at the possibility of earlier rate hikes. Governor Ueda hasn't ruled out responding to exchange rates with a policy move if the impact on prices is seen to be 'non-negligible.' The yen fell to 154.85 versus the dollar overnight, the weakest level since June 1990. Bets by leveraged funds and asset managers on yen weakness increased to more than 173,000 contracts through April 16, the most on record in Commodity Futures Trading Commission data going back to 2006. The BOJ is likely to discuss raising its projection for consumer prices excluding fresh food from the current 2.4% in the current fiscal year, and forecast price gains of around 2% in its first projection for fiscal 2026. The recent rise in oil prices in addition to the surprisingly strong results of spring wage talks make it almost certain inflation forecasts will be revised higher. Three quarters of BOJ watchers say the assessment of the risk balance, and whether upward risks are highlighted, will be more important than usual this time. Governor Ueda said that if underlying inflation continues to go up, they would be very likely raising interest rates. A policy reaction function has shifted under Ueda's leadership, with priority placed on returning Japan to a world with positive interest rates. However, the rate gap between BOJ and the Fed is just too wide for Japan to address on its own. Any move by the BOJ aimed at buoying the yen could be overshadowed several hours after the policy announcement, with the US set to release the Federal Reserve's preferred inflation gauge. Bond traders are closely watching to see if the BOJ indicates a shift in its bond buying plans. A reduction could be taken as a signal of an additional normalization step. After its March meeting, the BOJ pledged to keep buying almost the same amount of bonds as previously, or about ¥6 trillion ($38.8 billion) per month. Ueda last week said the bank thought it would be 'dangerous' to completely exit the market in one go.

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https://www.bloomberg.com/news/articles/2024-04-22/boj-to-hold-rates-with-focus-on-hawkish-signals-to-buoy-yen