The Bank of Japan's reticence on rate hikes does not mean that the yen is over.
The Bank of Japan (BOJ) has poured cold water on yen bulls who want to see clear signs of a shift in Japan's negative interest rate policy.
The Bank of Japan announced on Tuesday (December 19) that it would maintain the key interest rate at -01% unchanged and no further adjustments to the yield curve control policy, which the Bank of Japan made two fine-tuning earlier this year. What's more, Bank of Japan Governor Kazuo Ueda does not seem to have made a decision yet, disappointing yen bulls who had expected the Bank of Japan to signal a clear rate hike as early as January next year.
After the Bank of Japan's policy meeting, the yen briefly **1 against the dollar4% to 144 per dollar79 yen. The yen had been trading higher against the dollar in December, with the dollar retreating from a near 40-year high set in November. So far in December, USD/JPY has accumulated ** around 23%, but the USDJPY has accumulated more than 10% so far this year.
Kazuo Ueda and another BoJ** began to build long positions in the yen after comments made in early December by traders that were seen by traders as a signal that negative interest rates were coming to an end.
Krishna Guha, head of the global policy and central bank strategy team at Evercore ISI, commented that traders had previously thought that the BOJ would feel the need to raise interest rates once before the Fed started cutting rates, but Kazuo Ueda's speech poured cold water on their idea.
"We are not in a hurry to change policy because of what the Fed is likely to do in the next three to six months," Ueda said. He noted that most of the BOJ's policymakers believe it is necessary to "watch for a while".
Guha expects the BOJ to prepare for its first rate hike in April next year "methodically" and not suddenly in the coming months.
Skeptics of the expectation that Japan will raise interest rates soon also believe that the BOJ is unlikely to act in a hurry, arguing that the contraction of Japan's GDP and falling inflation in the third quarter will prompt the BOJ to keep its negative interest rate policy unchanged.
Some strategists believe that the Bank of Japan's reticence on rate hikes does not mean that the yen is over, and since the Bank of Japan is sure to tighten policy eventually, and the market expects the Fed and other major central banks to cut interest rates, some investors may be on the dip for the yen.
In addition, the decline in US Treasury yields itself could also weigh on the dollar.
Kit Juckes, global macro strategist at Société Générale, said: "The yen** is not a surprise after the BOJ meeting, but it does not represent a major shift in the yen's direction. ”
Next, annual wage negotiations between Japanese corporate unions and large employers will be in focus, and observers believe that wage pressures could be a reason for interest rate hikes.
Duncan Wrigley, chief Asia-Pacific economist at Pantheon Macroeconomics, said: "The Bank of Japan is likely to exit negative interest rates in the second quarter of next year, citing wage talks next spring, although economic and inflation data may not be sufficient by then to justify policy tightening." ”
The Bank of Japan (BOJ) has implemented a yield curve control (YCC) policy since 2016 to keep government bond yields low while ensuring that the yield curve slopes upward. Under the YCC framework, the Bank of Japan ensures that the yield on 10-year government bonds remains below the upper limit (1%) by purchasing the necessary amount of Japanese government bonds.
In October, the Bank of Japan said it would use the 10-year yield cap as a "reference", effectively ending its control of the yield curve.
The YCC is one of many unconventional measures taken by the Bank of Japan in recent decades to combat deflation.
In July, the Bank of Japan eased the yield cap, reducing it from 0The 5% increase to 1% was a shock to the global market at the time.
The change in the YCC has triggered or exacerbated the sell-off in U.S. Treasuries and other national Treasuries, and has led to higher volatility in ** and other assets, as Japanese investors may repatriate funds deposited in overseas assets if Japanese government bond yields rise.
Text |William Watts
Edit |Guo Liqun
Copyright Notice: Barron's original article, without permission, may not**. For the English version, see December 19, 2023**, "The Yen got slammed after bank of Japan stood pat." here’s what’s next.”。
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