A few hours before the US Fed, the Bank of Japan will hold its monetary policy meeting tomorrow morning. Expectations have risen recently and the market is pricing in a 10 basis point hike with a higher probability than no hike – although most economists polled by Bloomberg do not expect a hike, notes Volkmar Baur, FX analyst at Commerzbank.
There is no rise on the horizon
“I belong to the second group, but I would like to briefly explain my reasons. First, inflation has not moved as the BoJ expected in recent months. The annual rate has fallen further recently, and there are still few signs of domestic inflationary pressure. Second, the economy has also been quite disappointing lately. According to Bloomberg, economic surprises have been negative for months.”
“This means that the Japanese economy is underperforming. Third, (temporarily) successful interventions have caused the JPY to appreciate in the past two weeks. Therefore, the exchange rate is less of a reason for a hike. And fourth, the BoJ is expected to unveil its plan to reduce its gross bond purchases. So monetary policy will be tightened anyway.”
“The market may be surprised on Wednesday morning, but if the BoJ does not sound too dovish and continues to keep rate hikes on the table, the JPY pullback should be manageable.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
