The Bank of Japan announced an interest rate hike. What does this mean for the market? How will the yen move next?
After years of waiting, the Bank of Japan finally raised rates by 15 basis points and announced an expansion of quantitative tightening, tapering bond purchases until 2026. Also worth noting is that they lowered their inflation forecasts for the end of this year, which is the exact opposite of the European Central Bank, which cut rates but raised inflation expectations, while the Bank of Japan raised rates but lowered inflation expectations, which is an interesting difference. Some analysts call this a dovish rate hike, I think because of the lower inflation expectations. And with two members voting against it, I think the Bank of Japan basically delivered this time. After the decision was released, the yen initially fluctuated sharply, with the USD/JPY falling to around 152.5 at one point, and then rebounding to around 153.7. I still have the same view on the yen, the yen will gradually appreciate and will reach 150 in the next week or two. Of course, this also depends on the Fed tonight. If the Fed unexpectedly becomes hawkish, it will naturally affect the yen. Otherwise, the yen will continue to appreciate, and traders will continue to close carry trades in the coming weeks and months, which will continue to push the yen higher. Now that the dust has settled on the Bank of Japan, the market is focusing on the Fed tonight. If you don’t understand why you should pay attention to these two, you can check out yesterday’s analysis.
