Synopsis:
The Bank of Japan's upcoming policy announcement is teetering on the edge, with a 50-50 chance of introducing a 10bp rate hike to exit negative interest rates. While ING leans towards a delay until April for a more thorough consumer analysis, recent Japanese media suggest an imminent hike. This critical decision will significantly impact the yen, contingent on market expectations, which currently hover around a 50-60% probability of a hike, potentially ending the yield curve control policy but maintaining bond purchases to stabilize market volatility. The immediate effects on USD/JPY could see the pair testing the 150 level if the BoJ holds or dropping below 148.00 with a hike.
Key Points:
- Macro Perspective vs. Media Reports: While the broader economic outlook hints at a possible delay, specific media reports anticipate a rate hike in the imminent BoJ meeting.
- Binary Event for Yen: The BoJ's decision is poised to trigger significant volatility for the yen, with a near-even split in market expectations for this week's decision.
- USD/JPY Movement: A decision to hold rates could propel USD/JPY towards 150, whereas a hike might lead to a decline below 148.00.
Conclusion:
The BoJ's forthcoming policy decision is crucial, presenting a pivotal moment for the yen and broader market dynamics. Despite the potential short-term JPY volatility post-announcement, ING underscores that shifts in US data and Treasury yields will soon retake their roles as principal drivers of USD/JPY movement. The bank maintains a projection of a lower USD/JPY in Q2, contingent on declining USD rates and a BoJ rate hike.