- An important Bank of Japan meeting is around the corner and Interest rates may go up finally.
- Meanwhile, the US CPI continues to stabilize above 3%.
- USDJPY Tests an important zone in the 146-147 yen per dollar price area
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Over the past few years, most Bank of Japan meetings haven't changed much regarding monetary policy.
The BOJ has kept interest rates very low to boost inflation, aiming for a sustainable 2% rate over the long term. However, current inflation rates have been consistently below this target for almost two years.
There's growing speculation that the BOJ might raise interest rates for the first time since 2015. This is fueled by expectations of strong wage increases following labor union negotiations.
These negotiations are expected to conclude around March 15, with initial estimates suggesting a significant wage growth of around 5.85%, the highest in three decades.
While a shift in BOJ policy towards tightening may be on the horizon, it won't be an easy decision. The potential for a hawkish move by BOJ officials is being discussed, with some suggesting it could happen as early as the March or April meeting.
Additionally, recent revisions to GDP data show positive trends, with economic growth surpassing previous expectations and moving away from recessionary levels.
The BOJ's monetary policy relies heavily on controlling the 10-year government bond yield curve, aiming for a near-zero percent level with minimal deviation.
If the BOJ decides to adopt a more hawkish stance, it will likely proceed cautiously and gradually normalize its monetary policy.
A minor increase of 0.1 or 0.2 percentage points during the initial adjustment could lead to a strengthening of the Japanese yen.
Fed Ponders Path Ahead
As for the Federal Reserve, recent inflation data and the labor market have not provided clear signals for upcoming decisions.
Friday's unemployment rate and non-farm employment figures were inconclusive, while yesterday's inflation data slightly exceeded forecasts, indicating a continued stabilization above the 3% mark.
Things will likely stay the same at this month's meeting, but the market is still betting big on a pivot starting in June.
How Can I Play the Japanese Yen?
Looking at the USD/JPY pair, either the upward trend will keep going strong, or we might see a significant pullback.
Buyers have managed to hold their ground around the 146 yen per dollar mark, showing a strong demand for the currency.
The upcoming Bank of Japan meeting scheduled for March 19 will have a significant impact on the medium and long-term direction.
If the Bank of Japan does not announce a pivot as expected, it will strongly encourage buyers. Their first target will be the 149 yen price area, where there's local resistance.
However, if the BOJ makes a move and announces further hikes, we're likely to see the yen drop below 146 yen. This could lead to an attempt to reach the lows seen late last year.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
