The Bank of Japan did not give in to market pressure and kept its dovish guidance intact. In the view of economists at ING, the Yen should revert to being driven mostly by US rates after taking a hit today.
April hike on the table
The bank left its dual guidance unchanged, prompting markets to abandon most rate hike speculation already in January. But we have identified a few changes in the bank’s assessment of the economic outlook that likely support the market’s long-held expectations for growth in April. We expect a deregulation of the yield curve in January and an extension in April.
The Yen may simply revert to being primarily traded by external factors (US rates in particular) after the BoJ ignored market’s pressures and likely signalled the path to normalisation should be a gradual one.
We remain bearish on USD/JPY in 2024, as the oversold Yen can still benefit from the end of negative rates in Japan and we see the Fed cut rates by 150 bps, but the pace of depreciation in the pair will be gradual in the near term, and we only see a decisive break below 140 in 2Q24.
