The market is pricing in only a tiny chance of a Bank of Japan rate hike today but it’s a central bank that’s notorious for surprises, so we will be keeping a close eye. Excluding that, the market will be tuned into signals for the June 16 meeting, which is priced at roughly 50/50 for a rate hike.
In terms of the market, USD/JPY is flat on the day at 159.39 after falling as low as 159.10. The pair bounced off the level four times before the bounce in the past few hours. The move came on some broader USD losses as the stock market shows some optimism on the Iran war.
USDJPY daily
Looking at the chart, it’s been a sideways chop since the second week of March as the drag from oil hurts the yen but not enough to break the 160.00 barrier due to the threat of intervention. In addition, it’s golden week in China with four national holidays that will kick off on April 29 and extending to May 5. That will sap liquidity and I don’t think FX officials would look kindly on a break at that point unless it was due to a big shift in the Iran war (and probably not then either).
The 160.00-161.00 range is the obvious support cap and if that cracks, the pair could really run. The downside isn’t any different because if 160.00 marks a top, there will be a rush towards sales, particularly if the war ends and Warsh signals rate cuts after confirmation.
As usual, the BOJ has no set time of release but the latest we have to wait for it (beyond 11 pm ET), the more likely we are to get a surprise. Also worth noting is that we have had some big moves post- BOJ so far this year, even at times there weren’t surprises so keep a close eye.
