BOJ Holds Rates, Forecasts Sustained Inflation

JPY: Bank of Japan Holds Interest Rate as Expected

The Bank of Japan kept interest rates at 0.10% today and continuous buying operations of JGB 6 trillion Yen is continued until data dependent approach. Inflation is rising in the moderate pace, Companies rising wages will help inflation to rise further. GDP Forecast of 2024 is 0.80%, 2025 is 1.0% and 2026 is 1.0%, Core CPI forecast for 2024 is 2.8% 2025 is 1.9% and 2026 is 1.9%.

USDJPY has broken Ascending Triangle in upside

Outcome of Policy is more weakness due to more Dovish policy from BoJ today.

The Bank of Japan (BoJ) convened for its April monetary policy review meeting on Friday, where the board members made the decision to maintain the key interest rate at 0%. This choice aligned with the consensus among market participants.

This decision follows the notable move made in March when the central bank raised rates for the first time since 2007, effectively concluding Japan’s era of negative interest rates that commenced in 2016.

Key points from the BoJ’s policy statement include the removal of references indicating its monthly purchases of about 6 trillion yen worth of Japanese Government Bonds (JGBs). Instead, it will conduct buying operations for JGBs, Commercial Paper (CP), and corporate bonds in accordance with the decisions made in March 2024. The BoJ made its decisions on market operations through a unanimous vote.

The quarterly Outlook Report released by the BoJ indicated that Japan’s economy is experiencing a moderate recovery, though some areas still exhibit weakness. Inflation expectations are moderately increasing, and the economy is anticipated to continue growing above its potential as the positive economic cycle gradually strengthens. Consumption is expected to see gradual increases, and underlying inflation is projected to rise gradually toward the BoJ’s price target. Prices in the latter half of the projection period are expected to reach levels generally consistent with the price stability target.

The report also highlighted significant uncertainties surrounding Japan’s economic and price outlook, with risks to the economy considered generally balanced and risks to inflation skewed to the upside for fiscal 2024 but balanced thereafter. The output gap is improving and expected to gradually expand, with more firms beginning to pass on rising wages to sales prices. The BoJ anticipates the continuation of a positive cycle involving rising wages and inflation, while remaining vigilant to foreign exchange and market movements and their potential impacts on the economy and prices.

No excessive behavior was noted in Japan’s asset market or financial institutions’ practices. If trend inflation rises, the BoJ is prepared to adjust the degree of monetary easing accordingly. Accommodative monetary conditions are expected to persist for the time being, with monetary policy conducted appropriately in line with economic, price, and financial developments to stably and sustainably achieve the price target.

The board’s median forecast for real GDP growth in fiscal 2024 is +0.8%, revised down from +1.2% in January. For fiscal 2025, the median forecast remains at +1.0%, consistent with the January forecast, and is also projected at +1.0% for fiscal 2026. The median forecast for core CPI inflation in fiscal 2024 is +2.8%, up from +2.4% in January. For fiscal 2025, the forecast is +1.9%, slightly higher than the January projection of +1.8%, and remains at +1.9% for fiscal 2026.

JPY: BOJ Maintains Ultra-Low Rates, Forecasts Prolonged Near-2% Inflation

EURJPY is moving in Ascending channel and market has reached higher high area of the channel

Outcome of Policy is more weakness due to more Dovish policy from BoJ today.

The Bank of Japan (BOJ) opted to maintain interest rates near zero on Friday and released fresh projections indicating that inflation is expected to hover around its 2% target over the next three years. This move signals the BOJ’s preparedness to potentially raise borrowing costs later in the year.

The central bank announced its intention to continue purchasing government bonds according to the guidance established in March, wherein it committed to buying approximately 6 trillion yen ($38.45 billion) worth of bonds each month.

As anticipated, the BOJ retained its short-term interest rate target within the range of 0-0.1%, a decision made just a month prior when it marked a historic departure from its extensive stimulus program.

According to the BOJ’s quarterly outlook report, it anticipates a gradual increase in trend inflation as a positive cycle of rising wages and price growth strengthens. This trend is expected to align with the price target, reaching a level generally consistent with it around late 2025 through 2026.

Following the announcement, Japan’s Nikkei stock average rose by more than 1%, while the yen depreciated to a new 34-year low against the dollar, surpassing 156 yen. This outcome contradicted some outlier expectations in the market that speculated the possibility of a BOJ rate hike.

In its quarterly outlook report released post-meeting, the BOJ board projected that core consumer inflation would reach 2.8% in the fiscal year starting in April, before moderating to 1.9% in fiscal years 2025 and 2026. Additionally, the board anticipated the “core core” index, which excludes the impact of fuel costs, to reach 1.9% in both fiscal years 2024 and 2025, before accelerating to 2.1% in 2026.

Naomi Fink, global strategist at Nikko Asset Management, remarked that the forecast, notably in the upper 2% range, suggests a potential for future rate hikes, contingent upon the continuity of the “virtuous circle.” She emphasized that the maintenance of positive real wages is crucial to this virtuous cycle, and any unexpected surge in inflation could challenge it, potentially prompting a more hawkish stance from the central bank.

Market attention is now focused on any indications from Governor Kazuo Ueda’s post-meeting press conference regarding how the weakened yen might influence the timing of the next rate hike, as well as any insights into the future trajectory of the BOJ’s bond buying program.

JPY: Yen Falls to 156 Against Dollar as BOJ Keeps Rates Unchanged

CADJPY is moving in Ascending trend line and market has rebounded from the higher low area of the pattern

Outcome of Policy is more weakness due to more Dovish policy from BoJ today.

The Japanese yen dipped to 156 against the U.S. dollar on Friday after the Bank of Japan opted to maintain its benchmark interest rate unchanged.

As anticipated, the BOJ retained its benchmark policy rate within the range of 0%-0.1%. Additionally, Japan’s central bank affirmed its commitment to continue bond purchases in accordance with the decisions made in March.

Following the BOJ’s decision, the yen experienced a further decline, reaching new lows.

In economic news, Tokyo’s headline inflation rate for April was reported at 1.8%, down from March’s 2.6%. Core inflation, which excludes fresh food prices, dropped sharply to 1.6% from the previous month’s 2.4%, falling short of economists’ expectations.

The Nikkei 225 index in Tokyo saw a gain of 0.93%, while the Topix rose by 0.79%. In South Korea, the Kospi index climbed 1.24%, with a smaller increase of 0.3% observed in the small-cap Kosdaq. Hong Kong’s Hang Seng index rose by 1.73%, while mainland China’s CSI 300 was up by 1%. However, Australia’s S&P/ASX 200 index declined by 1.2%, primarily due to losses in industrial and health services stocks.

In the U.S., stocks experienced a downturn following reports of a significant slowdown in economic growth coupled with persistent inflation. The first-quarter gross domestic product (GDP) expanded by 1.6%, falling short of economists’ forecast of 2.4%. Moreover, the personal consumption expenditures price index showed a 3.4% increase, surpassing the previous quarter’s 1.8% rise.

The Dow Jones Industrial Average dropped by 0.98%, driven by notable declines in Caterpillar and IBM. The S&P 500 fell by 0.46%, while the Nasdaq Composite experienced a 0.64% decline.

Looking ahead, investors are awaiting a press conference by BOJ Governor Kazuo Ueda later in the day for further insights into the central bank’s decision and its potential implications.

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