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BOJ’s Kuroda Set to Risk Further Yen Weakening After Fed Decision

·3 min read

(Bloomberg) -- Governor Haruhiko Kuroda will be at risk of shifting the yen toward further weakness by holding on to the message that the Bank of Japan must carry on with monetary easing, hours after another major interest rate hike from the Federal Reserve.

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Kuroda and his fellow board members are set to conclude a two-day meeting Thursday, and are expected to keep both the yield curve control program and asset purchases unchanged, according to all 49 economists surveyed by Bloomberg.

No major action from the BOJ is likely to bestow a new title to the outlier central bank soldiering on amid the global tightening cycle. The Swiss National Bank is forecast to scrap its negative rates late Thursday afternoon Tokyo time, leaving the Japanese bank as the lone member of central banking’s subzero world for the first time.

A key focus of the gathering will be if and how the BOJ will change its wording for forward guidance, as it’s widely expected to end the remaining part of its Covid funding program. Even if the language is tweaked, most BOJ watchers don’t expect a shift in the long-held easing bias of keeping rates at the current level or lower.

Kuroda has pushed back against speculations over an early tightening by citing a lack of momentum for sustainable inflation. The sort of massive rate hikes necessary to stop the yen’s slide would also end up breaking the economy, he said after the previous policy meeting in late July.

With all the repeated and unflinching remarks even in the face of the fastest depreciation of the yen on record this year, most BOJ watchers expect no adjustments before Kuroda steps down in April.

Still, traders will be closely watching for any shift in Kuroda’s remarks over the yen. The governor is likely to reiterate that abrupt moves increase uncertainties and are negative, without committing to taking any action related to currencies.

Last week Finance Minister Shunichi Suzuki indicated the rising possibility of currency intervention as the BOJ conducted a rare foreign exchange rate check.

While no rate check confirmation is likely from the BOJ, some analysts are watching if Kuroda, a former top currency official, may hint at support for yen buying from the government.

The policy statement is usually released around noon followed by a press briefing by Kuroda at 3:30 p.m.

What Bloomberg Economics Says...

“The BOJ wants to see stronger wage growth first. We expect the BOJ to maintain its yield-curve settings on Thursday. So, from Japan’s side, there will be no relief for the yen yet.”

Yuki Masujima, economist

Click here to read the full report.

What to look for

  • Some 77% of surveyed economists expect a decision to end the special covid funding program as scheduled this month.

  • Kuroda will likely emphasize there’s a long road ahead for normalization and there’s no direct link between the Covid program termination and policy shifts.

  • The BOJ says it won’t hesitate to add easing if needed while watching the impact of the pandemic on the economy. BOJ watchers will be checking to see if the language is tweaked with the end of the funding aid.

  • The central bank’s assessment of production is likely to be upgraded as it has shown a recovery from China’s lockdowns. The view for the global economy could be downgraded due to a darker outlook amid aggressive tightening from central banks.

  • Economists are watching how a record surge in infection cases, a continued acceleration in the cost of living and the yen’s rapid fall have shaped BOJ’s outlook for economic growth and inflation. They will be important points to assess for the future path of monetary policy.

  • The yen could still surprise markets by strengthening before the BOJ decision, if the Fed unexpectedly indicates a shorter tightening cycle in its new outlook.

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