Yen looks to extend gains as BoJ set to press ahead with policy normalization
Wall Street bounces back on hopes of upbeat tech earnings, Fed rate cut signal
Gold and oil in tepid rebound despite heightened tensions in the Middle East
BoJ to Kick Off Trio of Central Bank Meetings
The edged higher on Monday as investors anticipate the Bank of Japan to take the next steps in its policy normalization plans when it announces its latest decision on Wednesday.
Expectations are running high that the BoJ will not only reduce its bond purchases, but that it may also hike interest rates for a second time this year.
It’s almost likely that there will be some form of an announcement on tapering this week, with some reports suggesting a halving of the monthly JGB purchases over the next few years. What is less certain is whether or not policymakers will also agree to raise rates or leave that decision for another meeting.
Investors have been upping their bets of a rate hike in recent weeks, pricing in around a two-thirds probability of a 10-basis-point increase, amid growing calls by Japanese government officials for the BoJ to do more to tackle the weak yen.
Yen on a Roll
The yen has surged by about 4.5% against the this month. But much of the gains have been on the back of the unwinding of yen carry trades rather than on policy speculation.
Although the nearing of a BoJ hike and a Fed cut is undoubtedly adding fuel to the rally, the trigger seems to have been Trump’s recent comments on the strength of the dollar and the weak yen amongst others, which has set off a massive reversal of global carry trades. This in turn has sparked a short squeeze in the yen, further boosting the currency.
A rate hike accompanied by a hawkish tone could see the yen rallying further but it may also be the right time for a technical correction if the BoJ disappoints.
Rising Odds of a BoE Cut
The yen’s newfound strength has made for a mixed dollar, as commodity-linked currencies have sunk in the past couple of weeks, while the and have been somewhat more resilient. But sterling’s losses…
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