BOJ preview: What would the first hike since ‘07 mean for USDJPY and the Nikkei?
Investing.com-- The Bank of Japan (BOJ) is set to conclude a two-day policy meeting on Tuesday, with markets engaging in rampant speculation over what could be the BOJ’s first rate hike in 17 years, as well as the reaction from the Nikkei 225 and the USDJPY to such a move.
Signs of higher Japanese wages, sticky inflation and some resilience in the economy drummed up expectations that the BOJ could end its ultra-dovish negative interest rate (NIRP) and yield curve control (YCC) policies by as soon as its March meeting.
Media reports also suggested that BOJ members were in advanced talks over raising interest rates from negative territory.
This speculation pulled Japanese stock markets, particularly the Nikkei 225, down from record highs, and also helped the yen’s USDJPY pair fall as far as 146 to the dollar over the past week.
But the Nikkei rebounded sharply on Monday, while USDJPY rose back to around 149.
The BOJ kicked off a two-day meeting on Monday, and is expected to deliver its decision after the conclusion of the meeting around 12:30 JST (23:30 ET) on Tuesday.
Signs of higher wages and sticky inflation factored into expectations for a “virtuous cycle” outlined by the BOJ. These are the two main considerations signaled by the central bank to begin ending its YCC and NIRP policies.
As such, markets began pricing in the possibility of a 20 basis point (bps) hike by the BOJ, raising its short-term interest rate to 0.1% from negative 0.1%. Such a hike will be the BOJ’s first such move since 2007, when it had raised interest rates just before the Great Financial Crisis.
But analysts were still split over whether such a move will come in March or April.
BOFA, who is among the proponents for a March hike, said it
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