Marketmind: Bank of Japan countdown almost over
By Jamie McGeever
(Reuters) — A look at the day ahead in Asian markets.
The Bank of Japan's policy decision and subsequent remarks from Governor Kazuo Ueda will dominate Asian markets on Tuesday and maybe give investors an insight into how wide the divergence will be between the BOJ and other major central banks next year.
While markets reckon the U.S. Federal Reserve, European Central Bank and Bank of England are at the end of their hiking cycles and pivoting toward interest rate cuts next year, the BOJ is only just emerging from years of negative rates and ultra-loose policy.
While no one is expecting the BOJ to raise rates on Tuesday, the landmark move could come sooner than many expect — the BOJ has already surprised markets with tweaks to its 'yield curve control' policy and intervened in the FX market buying yen, so who's to say it won't raise rates in January?
On Monday Japan's yen weakened, the benchmark Nikkei 225 stock index fell and 10-year Japanese Government Bonds rose, which pushed the yield down around 4 basis points.
The yen has been one of the best-performing G10 currencies this month on growing hawkish speculation around the BOJ, appreciating almost 4% against the dollar since the turn of the month. This follows a 2.5% rise last month too.
Further yen strength will help the BOJ in its fight to get inflation sustainably back toward its 2% target, and households will welcome the downward pressure on import prices, but it will hurt exports, traditionally a major engine of economic growth.
Hedge funds have been net short the yen since March 2021, according to Commodity Futures Trading Commission data, but a shift is underway ahead of that seismic shift on rates from the BOJ, whenever it comes.
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