On Friday, the Bank of Japan (BoJ) maintained its key interest rates, leading to market disappointment due to a lack of detailed policy guidance. The decision sent the yen to new lows against the dollar. ING analysts predict that the BoJ will implement a 15 basis point hike in July and a subsequent 25 basis point hike in October, as inferred from the latest outlook report and comments by Governor Ueda.
The BoJ's statement was notably brief, comprising only three sentences, which contrasted with its more expansive communications in the past. The central bank removed the wording about a specific purchase amount of approximately 6 trillion yen, a detail included in the March statement.
This change suggests the BoJ is seeking more flexibility in its Japan Government Bond (JGB) purchasing operations, although it is not clear if this indicates an imminent start to Quantitative Tightening (QT).
Despite media speculation, the BoJ did not confirm any immediate changes to its JGB buying programme. Governor Ueda, in a press conference, stated he could not provide a specific timeline for when JGB purchases might be reduced.
This lack of clarity did not lend support to the Japanese currency. Furthermore, Governor Ueda did not assertively link the yen's weakness to inflation or monetary policy, noting that the currency's depreciation has not yet impacted underlying inflation and that the BoJ does not target FX control with its policies.
The USD/JPY pair has surged to new highs above 156 in response to the BoJ's stance and the recent rise in US rates. ING analysts speculate on the possibility of Japanese authorities intervening in the currency market, but suggest that upcoming events such as US inflation data release, a Japanese holiday on Monday, and the Federal Open Market Committee (FOMC) meeting on Wednesday may delay any potential intervention. They indicate that a further increase in USD/JPY, possibly approaching 160, may trigger such action.
InvestingPro Insights
As the Bank of Japan's policy decisions continue to impact the financial markets, particularly the performance of the Japanese yen, investors are closely watching the currency's movement against the dollar. Real-time data from InvestingPro shows a 1-week price total return of -0.67% and a more significant 1-year price total return of -14.58% for the yen, reflecting the currency's recent challenges.
The yen's price is currently at 84.22% of its 52-week high, which may be of interest to investors considering the currency's potential for rebound or further decline in the context of the BoJ's monetary policy.
InvestingPro Tips suggest that the current market cap of 297.55M USD and a negative P/E ratio of -153.75 indicate a cautious approach may be warranted for investors in Japanese assets. With an operating income of -0.96M USD over the last twelve months as of Q4 2023, the financial health of Japanese companies could be under scrutiny as the BoJ navigates its monetary policy.
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