Following the U.S. Federal Reserve's hawkish rate-hike decision, the dollar is likely to strengthen against the yen, while Japanese markets are expected to become increasingly directionless ahead of the BOJ's monetary policy announcement. Stocks are likely to remain sensitive to concerns about further U.S. rate hikes, as well as movements in long-term interest rates and changes in crude oil prices.
In Tokyo markets on the 17th, expectations grew that the trend of a stronger U.S. dollar and weaker yen would continue after the FOMC unanimously raised its policy rate by 0.25 percentage points. Most of the market expects roughly one more rate hike this year, while reports point to a strengthening of the Fed's stance on curbing inflation.
However, with the BOJ's monetary policy announcement due the following day, expectations of a BOJ rate hike may limit the yen's decline, and the market may move toward range-bound trading. In the bond market, bonds are expected to decline, particularly short- and medium-term issues, while yields are likely to rise.
While short-term interest rates in the U.S. market are expected to maintain their upward trend, views are spreading that ultra-long-term yields will decline as concerns about inflation recede. A pause in the surge in crude oil prices and shifts in the outlook for global economic growth may also provide support for stocks.
Japanese stocks have factors encouraging buying, particularly in growth stocks, but the market is expected to remain in a phase in which U.S. market trends have a direct impact. Investors will be watching both the BOJ's policy announcement and U.S. interest-rate movements closely.