6 new stocks added last week by ProPicks AI are already up by 2.5%. Don't miss the momentum!Get 50% off

BOJ preview: Negative rates to stay, pivot plans in focus

Published 12/19/2023, 09:00 AM
© Reuters.
USD/JPY
-
JP225
-
US10YT=X
-
JP10YT=XX
-

Investing.com-- The Bank of Japan is widely expected to maintain interest rates at negative levels later on Tuesday, amid continued signals from central bank officials that they are in no hurry to tighten policy.

But any signals from the central bank on when it plans to begin pivoting away from its ultra-dovish policy will be in close focus, especially amid growing expectation that 2024 will be the year that the BOJ ends its yield curve control (YCC) regime. 

Short-term rates are expected to be held around negative 0.1%, while the target for the benchmark 10-year bond yield is expected to remain at 0%.

The BOJ had widened the range within which it allowed 10-year yields to fluctuate three times over the past 12 months- its first move to tighten policy since it began its YCC measures in 2016. 

While BOJ Governor Kazuo Ueda signaled an eventual end to the YCC policy in 2024, he also recently said that policy will remain loose in the near-term, citing the need for more support for the Japanese economy. 

Ueda had also signaled a “challenging” end to the year for the bank, briefly triggering a string of hawkish bets on the yen before officials said policy will remain loose for now. 

“Market participants will be seeking for further clarity at the upcoming meeting as to whether the comments may have been misunderstood. For now, broad market expectations are priced for Japan to scrap its negative rates only in the second quarter of 2024,” analysts at IG wrote in a recent note. 

A Reuters poll recently showed that a bulk of market participants are looking at a 2024 pivot, although the timing of such a move is seen later in the year, rather than earlier. 

Tuesday’s meeting- which is the last major central bank meeting for the year- is expected to offer more cues on plans for an exit from YCC, especially amid growing pressure on the BOJ to consider such a move.

The BOJ was an outlier among major central banks this year, most of which raised interest rates and flagged tighter policy in the face of high inflation. But other central banks- particularly the Federal Reserve- are now set to begin loosening policy in 2024, amid some cooling in the global economy. 

Inflation has consistently overshot the BOJ’s 2% annual target for nearly two consecutive years, while 10-year bond yields have also tested their 1% upper limit in recent weeks. 

Still, weakness in Japan’s economy may keep the BOJ dovish for the time being. Recent data showed Japan’s economy shrank more than initially expected in the third quarter, following a short-lived boost from tourism. 

High inflation, laggard wage growth and a weak yen weighed heavily on consumer spending, which saw gross domestic product shrink 2.9% annually in the quarter.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.