On Friday, it will be the Bank of Japan’s turn to announce its monetary policy decision.
Will they change their tone this time? And if so, how might this affect the JPY crosses?
Here are the important points you need to know if you are planning to trade the news:
Focus on the event:
Bank of Japan (BOJ) Monetary Policy Statement
When will it be released:
June 16, Friday: 3:00 a.m. BST tentatively
Bank of Japan Governor Kazuo Ueda will hold a press conference after the announcement.
Use our forex market hours tool to convert GMT to your local time zone.
Expectations:
- Bank of Japan keeps interest rate on hold at -0.10%
- No changes in the yield curve control policy are expected
Related Eurozone data since the latest BoJ statement:
🟢 Bullish Monetary Policy Arguments / Bullish Japanese Yen
Consumer confidence index for the month of April It rose from 33.9 to 35.4 against the estimated figure of 34.7, and the May reading improved further to 36.0
Economic Watchers Confidence Index for April It rose from 53.3 to 54.6 reflecting stronger optimism against an estimated reading of 54.1, May’s reading improved further to 55.0
Preliminary GDP for the first quarter It showed a stronger quarterly expansion of 0.4% versus an expected growth number of 0.2% and a previous flat reading, later bumped up to 0.7% growth.
The preliminary index of GDP prices for the first quarter It accelerated from 1.2% yoy to 2.0% as expected
April CPI National Core It rose from 3.1% yoy to 3.4% as expected, posting consecutive monthly gains.
Manufacturing PMI may lighten It rose from 49.5 to 50.8 to indicate a shift from contraction to expansion for the first time in seven months.
Bank of Japan Core Consumer Price Index for April It rose from 2.9% to 3.0% yoy instead of declining to the consensus of 2.8%
🔴 Pessimistic Monetary Policy Arguments / Bearish Japanese Yen
Average cash earnings for the month of March Unchanged at an increase of 0.8% year-on-year against an estimated increase of 1.0%, and later raised to an increase of 1.3%. The April reading eased at 1.0% yoy against the 1.7% consensus
Household spending for the month of March Decreased 1.9% yoy versus an expected gain of 0.9%, erasing part of the previous 1.6% rise, May’s number fell further to show a 4.4% yoy decline
Producer price index for April Reversing an increase of 5.8% year-on-year versus an estimated increase of 5.6%, the pace slowed for the fourth month in a row. The producer price index in May fell to 5.1% y/y
Do the activity of the third industry It slowed 1.7% month over month versus the estimated 0.3% increase, erasing a previous gain of 1.7%.
April Tokyo core consumer price index Decreased from 3.5% yoy to 3.2% vs expected decline to 3.4%
April Industrial Production It fell 0.4% month over month versus an estimated gain of 1.4%, marking the first decline in three months.
April retail sales It slowed from a 6.9% yoy decline in gains to just 5.0% versus the estimated 7.1% increase.
Previous issues and the impact of the risk environment on the Japanese yen
April 28, 2023
Action / Results: The Bank of Japan kept its monetary policy unchanged during the April decision, keeping interest rates at -0.10% and maintaining YCC, as expected.
Prior to the announcement, President Ueda had already mentioned in a speech that it was “appropriate to maintain monetary easing” for the time being, but also said that the Bank of Japan was willing to raise interest rates “if wage growth and inflation accelerate faster than expected.”
The selling of the yen continued through the end of the week since the central bank removed any forward guidance and hinted that it may take more than a year before its policy review is completed.
Risk Environment and Intermarket Behaviors: The safe-haven yen was already enjoying some support from risk-off flows early in the week, as recession fears and debt-ceiling issues were at play.
Later, the Japanese currency got additional support from the Bank of Japan Core CPI which came out stronger than expected.
Risk appetite took over around the middle of the week when US earnings numbers started to look hot and Congress passed legislation that could raise the debt ceiling. This forced the yen to regain some of its previous gains, before accelerating its decline during the Bank of Japan’s announcement.
March 10, 2023
Action / Results: It was former Bank of Japan Governor Kuroda’s last stint as CEO, so policymakers refrained from making any major changes as they transitioned to the leadership of new President Ueda.
Policymakers voted unanimously to keep interest rates unchanged at -0.10% and to keep yield curve control in place.
Although the yen took a sharp fall during the announcement, the lower-yielding currency managed to rally before the week was over, as risk aversion remained the leitmotif of the market.
Risk Environment and Intermarket Behaviors: Problems in the US banking sector stemming from the operation of SVB Bank were the main theme of this trading week, spurring risk-off flows and supporting the low-yielding yen.
Apart from that, the upbeat outlook from the likes of the Fed also had traders flocking to the greenback and boosted US bond yields while also remaining wary of recession risks.
price movement probabilities
Possibilities of feeling risky: Most of the major currencies seem to be trading cautiously in ranges so far, as market players are likely to hold on to this week’s higher-level catalysts.
The biggest event this week, the FOMC Monetary Policy Statement, has just come and gone, and despite the Fed’s long walk-in delay as expected, we’re seeing a slight pro-dollar reaction for now, likely due to rhetoric that more of a potential interest rate hike. Come on and no Fed member will see a rate cut in 2023.
This could tip risk sentiment towards risk aversion by the time we get to the BoJ statement, with risk aversion becoming more likely if we get a hawkish tone to accompany a rate hike from the ECB’s monetary policy decision on Thursday.
Scenarios for the Japanese yen
Base case: As many would expect, the Bank of Japan is likely to keep interest rates and monetary policy unchanged for the time being.
Keep in mind that policy makers have been counting on the wage hike talks to translate into stronger pay increases and inflationary pressures in the past month. However, the actual cash earnings numbers turned out to be weaker than expected, limiting household spending as well.
With that said, BoJ officials are likely to acknowledge the green shoots in the economy, but also reiterate their plans to stay easy on policy until they achieve their inflation target in a “stable and sustainable” way.
Confirmation that the Bank of Japan plans to keep policy unchanged for more than a year or until they complete their policy review could mean more downside for the Japanese yen against currencies with tighter policies such as the euro, Australian dollar or Canadian dollar, especially if the overall risk sentiment leans towards positive trend. weekend.
Alternative scenario: In some of Governor Ueda’s speeches, he mentions that they are beginning to see noteworthy economic improvements.
He even suggested that changing the bank’s policy target from the current 10-year yield to a five-year yield might be an option if they were to adjust the YCC in the future. After all, he also noted that they’re open to tweaking the YCC “if the balance between the benefit and cost of the policy changes.”
Although Ueda said the BoJ should refrain from tightening prematurely, policymakers may have different opinions and express non-pessimistic biases in this week’s announcement.
In this low probability scenario, look for short-term opportunities to buy the Japanese yen against forex rivals whose central banks are turning less hawkish, such as the New Zealand dollar or the potential US dollar, with more conviction if the overall risk sentiment turns negative at the weekend. the week .
