With this week’s FOMC and BOJ meetings approaching, the pace of additional BOJ rate hikes has become the market’s focus. Many experts point to the possibility that the yen will turn lower by year-end.
Nikkei surveyed 14 people involved in the FX market, and all of them expect the BOJ to raise its policy rate from the current 1.0% to 1.25% at its monetary policy meeting on the 17th–18th. The yen was trading in the ¥154 range against the dollar that day.
Rather than the rate increase itself, the market is focusing on clues about the timing and pace of subsequent increases. Remarks by Governor Ueda Kazuo (上田和夫) at a press conference and the contents of speeches by board member Takada (髙田) were interpreted as suggesting the possibility of more flexible rate increases, signaling a departure from the previous approach of raising rates by 0.25 percentage points every six months.
Views differ on the factors that will determine whether the yen strengthens or weakens by year-end, including the impact of continued high crude oil prices on inflation and the pace of BOJ rate increases. US interest rate trends and the possibility of public pension funds increasing their allocation to yen-denominated assets were also cited as potential drivers of currency movements. There is also a view that further yen appreciation would ease the burden of import prices, reducing the likelihood of an early acceleration in rate hikes.