Japanese yen holds slightly higher after a more hawkish hold by the BOJ
The BOJ policy decision earlier sees USD/JPY drop back from around 159.50 to sit closer to the 159.00 level currently. The central bank opted to maintain the short-term interest rate at 0.75%. However, there were three board members who dissented and wanted to push for a 25 bps rate hike today. The members who dissented were Takata, Tamura, and Nakagawa.
The yen moved higher as this looks to be at least a step in the direction towards a rate hike in June, all else being equal. That after the BOJ also upped its inflation forecasts for fiscal year 2026 to 2.8%. That marks a sharp increase from their previous projection in January of 1.9%.
As such, it definitely sets the stage for their next move even if they are not quite ready to act upon that today just yet.
The relative uncertainty from the Middle East conflict is still weighing and being too hasty in raising interest rates could backfire on the economy. As I mentioned yesterday, major central banks have a very tough balancing act in going about managing policy in the months ahead. The post: Major central banks are up against a very tough task in navigating monetary policy next
The drop in USD/JPY currently sees price action fall back below the key hourly moving averages. That puts sellers back in near-term control but given the more cautious market mood, it will be tough to see the yen pull stronger gains in general.
The uncertainty of the Middle East conflict is still weighing strongly on the currency and the Japanese economy, no thanks to oil prices still being sky high. Sure, the futures market may look calmer but physical prices for oil barrels are at lofty premiums of around $140 to $150. And that is the price that Japan has to pay now while having to balance out another round of releasing their emergency reserves.
Unless the situation in the Middle East changes, it will be tough for the yen to get off the floor. And in that lieu, just be wary of the market reaction along the Japanese yield curve.
The short-end of the curve is seeing yields push up but the longer-end is seeing yields push down instead. That’s a small but subtle signal that the long-end is showing fears of a potential economic bust from over-tightening.
This article was written by Justin Low at investinglive.com.