During US time on Thursday USD/JPY rose above 158.00 and to its highest level since the middle of July this year.
Since then we’ve had inflation data from Japan (Tokyo) and the ‘Summary’ of the Bank of Japan December meeting, which combined have seen USD/JPY drible a little lower.
Inflation in Tokyo picked up speed for the second consecutive month in December, driven by the temporary removal of government utility subsidies. This outcome alone is likely to strengthen predictions of an interest rate hike in the coming year.
After this data came the release of the Bank of Japan ‘Summary of Opinions’ from the December meeting:
At this meeting, the Bank of Japan (BOJ) debated the possibility of a near-term interest rate hike, with some policymakers suggesting that conditions were aligning for such a move. One member even predicted a rate increase “in the near future.” However, the BOJ decided to keep the policy rate steady at 0.25%, emphasizing the need for additional data on wage growth and greater clarity regarding the economic policies of the incoming U.S. administration.
Some members voiced concerns about the uncertainties surrounding Japan’s tax and fiscal policies and the potential impacts of the U.S. government’s upcoming changes in 2025. They also highlighted challenges faced by smaller Japanese firms, whose profitability remains weak, and risks from slow recoveries in overseas economies.
On the other hand, other policymakers expressed optimism, arguing that Japan’s economy was strong enough to begin reducing monetary easing. They pointed out that the conditions for raising interest rates were gradually being met, with one member suggesting that the BOJ was likely to implement a hike in the near future.
The BOJ has already made significant policy changes this year, abandoning negative interest rates in March and raising the short-term rate to 0.25% in July. It has also indicated that further rate increases could follow if wage and price growth align with expectations. A Reuters poll conducted earlier this month reflected market sentiment that the BOJ would raise rates to 0.50% by the end of March 2024.
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I tried to get this chart posted quickly before USD/JPY made a liar out of me … looks like the bids have not dissipated yet!
