The Bank of Japan (BoJ) is expected to approve an interest rate hike at its next policy meeting, marking a significant shift from its ultra-loose monetary policy stance. While a majority of board members support the move, some remain cautious. The potential rate hike has triggered a pause in the USD/JPY pair's rebound, with the Japanese Yen showing signs of strengthening.
Citing multiple unnamed sources, the Nikkei Asian Review reported on Friday that a majority of Bank of Japan (BoJ) board members are expected to approve an interest rate hike at the Bank's policy review meeting next week. However, sources said that some board members remain cautious of a rate hike, the Nikkei added. Market reaction USD/JPY paused its rebound near 155.90 following these headlines. At the press time, the pair is up 0.30% on the day at 155.75.
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.The Bank of Japan embarked on an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.How do Bank of Japan’s decisions influence the Japanese Yen? The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.Why did the Bank of Japan decide to start unwinding its ultra-loose policy? A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move
BANK OF JAPAN INTEREST RATE HIKE MONETARY POLICY JAPANESE YEN USD/JPY
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