Japanese Yen lacks clear direction ahead of BoJ interest rate decision

Ahead of the BoJ’s monetary policy decision, USD/JPY remains broadly unchanged.
With the BoJ expected to leave rates unchanged on Friday, traders seek signals of a December increase.
Despite US inflation and GDP figures supporting hawkish Fed expectations, the Dollar finds little upward momentum.

USD/JPY is trading around 157.90 at the time of writing. The pair is broadly flat on Thursday: the Japanese Yen (JPY) trails most major peers, but US Dollar (USD) weakness limits any advance. Caution prevails ahead of Friday’s monetary policy announcement from the Bank of Japan (BoJ).

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Interest rates are widely expected to remain at 1.25% when the BoJ meets, after September’s 25-basis-point (bps) increase brought cumulative tightening this year to 50 bps. By pausing, policymakers would have more time to gauge the impact of earlier hikes on borrowing conditions and economic activity.

Updated growth and inflation projections, together with Governor Kazuo Ueda’s press conference, will take centre stage given expectations of no change on Friday. A further rate increase is anticipated in December. Higher energy prices and the weak Yen’s impact on import costs are adding to inflationary pressure.

At 2.1% YoY, the latest increase in prices excluding fresh food was above both the previous 1.7% reading and the BoJ’s 2% target. Excluding fresh food and energy, inflation accelerated from 1.9% to 2.4%. Japan’s October Tokyo Consumer Price Index (CPI) and September unemployment data are due before the policy decision, offering a further assessment of price pressures and labour market conditions.

Guidance for year-end matters more to FX markets than the immediate decisions at upcoming BoJ meetings, according to Commerzbank analysts. As they put it, “for FX markets, the more important question will therefore be what the BoJ signals about December.” They note that “markets currently price in an around 80% probability of a rate hike by then,” adding that this is “in line with our own expectation that the BoJ will raise the policy rate to 1.5%.” Their assessment is that “recent BoJ communication, alongside the economic backdrop, increasingly suggests that the next step towards policy normalization is approaching.”

Thursday’s releases in the United States (US) showed stronger-than-expected third-quarter GDP growth alongside higher annual headline and core PCE inflation. Both personal income and spending missed forecasts. Jobless claims, however, came in below expectations, suggesting layoffs remained low.

A December rate increase by the Federal Reserve (Fed) remains firmly in play following the data, after policymakers left rates unchanged on Wednesday. The US Dollar has nevertheless struggled to hold its initial gains following the releases. Having touched an intraday peak of 102.33, the US Dollar Index (DXY) slips towards 102.00. The index measures the Greenback against a basket of six major currencies.

US Dollar: Today’s Currency Performance

The US Dollar (USD) recorded its strongest performance against the Australian Dollar today. Its percentage moves against the major currencies listed are set out below.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.13%	-0.31%	0.02%	-0.14%	0.28%	-0.11%	-0.25%
EUR	0.13%		-0.18%	0.18%	-0.02%	0.42%	0.01%	-0.13%
GBP	0.31%	0.18%		0.32%	0.16%	0.60%	0.20%	0.05%
JPY	-0.02%	-0.18%	-0.32%		-0.16%	0.27%	-0.14%	-0.28%
CAD	0.14%	0.02%	-0.16%	0.16%		0.43%	0.03%	-0.11%
AUD	-0.28%	-0.42%	-0.60%	-0.27%	-0.43%		-0.39%	-0.54%
NZD	0.11%	-0.01%	-0.20%	0.14%	-0.03%	0.39%		-0.12%
CHF	0.25%	0.13%	-0.05%	0.28%	0.11%	0.54%	0.12%

Percentage movements between major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. To read USD (base)/JPY (quote), for instance, start with the US Dollar on the left and follow that row across to the Japanese Yen. The intersecting cell gives the pair’s percentage change.