The Deputy Governor of the Bank of Japan has signalled a cautious approach to the eventual normalisation of its ultra-loose monetary policy. Yen weakened as a result
He went on to clarify that even once the Bank adjusts the interest rate to zero or into positive territory, additional hikes may not be forthcoming. Since markets are already pricing in an exit from negative interest rates, the focus now shifts to the timing and magnitude of interest rate hikes.
Uchida’s comments are followed closely as he has been known for providing key policy hints in the past. However, not all support is expected to stop. Uchida intimated that the BoJ will not stop its bond buying even after bringing yield curve control to an end. The idea here is to retain control on borrowing rates to stop a scenario where rising interest rates weighs on The yen continues its broad decline from yesterday as can be seen by the constructed Japanese Yen Index below. The index is an equal-weighted average of four popular Yen pairs and helps provide an indication for the value of the yen.150 mark, and a notable pick up in economic data in the US adds to the recent upside potential, although, it must be noted that the dollar has eased this week. The pair trades well above the 200-day simple moving average and currently tests the recent swing high set in January. Fed speak this week has remained fairly neutral in that there is still an expectation of multiple rate cuts this year despite the resilient US economy. One hint that interest rates may not drop as low as markets anticipate came via the Minneapolis Fed President, Neel Kashkari as he suggested current interest rates may not be all that restrictive if you consider the neutral rate is higher than before. The neutral rate is a theoretical level of interest rates that is neither stimulatory or restrictive in nature.The bullish move will need to be monitored but as the year progresses, momentum is likely to favour downside setups, particularly in the lead up to the March and April BoJ meeting which are being monitored for that all important rate increase. The BoJ are taking a long run up, communicating their intentions well in advance of withdrawing from negative rates in the hopes of maintaining stable market conditions when the Bank does eventually enter non-negative territory.Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. Forex trading involves risk. Losses can exceed deposits. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Information presented by DailyFX Limited should be construed as market commentary, merely observing economical, political and market conditions. This information is made available for informational purposes only. It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice. Any examples given are provided for illustrative purposes only and no representation is being made that any person will, or is likely to, achieve profits or losses similar to those examples. DailyFX Limited is not responsible for any trading decisions taken by persons not intended to view this material.
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