(Bloomberg) -- The yen’s outlook is deteriorating after the Bank of Japan skipped a potential rate hike, while the central bank’s economic statement can be seen as somewhat dovish, according to strategists.
The cautious BOJ, compared with the Fed’s hawkish tilt Wednesday, may give further impetus for carry traders to bet on future yen weakness, Saxo Markets says. Attention will now shift to Governor Kazuo Ueda’s press conference later Thursday, but there’s a limit to how hawkish he can be, according to Nomura Securities.
Here is a selection of comments from strategists:
RBC Capital Markets (Alvin T. Tan, head of Asia FX strategy in Singapore)
While I was not really expecting a BOJ hike today, the unchanged economic statement is a tad dovish, though this is partly balanced by the dissenting vote for a hike. Ueda’s press conference later will be closely watched for any guidance he might offer.
There is an expectation that he will provide stronger hints of a January hike. If he is totally noncommittal, then USD/JPY upside has more legs.
Commonwealth Bank of Australia (Carol Kong, strategist in Sydney)
The increase in USD/JPY just reflects an unwinding of the small pricing for a 25 basis point rate hike going into the meeting. There is a chance Ueda hints at a hike in early 2025, which will see USD/JPY correct lower. If not, it can send USD/JPY higher, perhaps to last month’s high of 156.75.
Saxo Markets (Charu Chanana, chief investment strategist in Singapore)
The Fed’s hawkish tilt and BOJ’s pause could bring fresh reasons for yen traders to “carry” on. The only thing in the way of new carry trades is heightened volatility, which means USD/JPY could face a firm resistance at 160, if not before.
Nomura Securities (Yujiro Goto, head of FX strategy in Tokyo)
There’s a limit to how hawkish Ueda can be as the statement is unchanged and contained no surprises.
If Trump’s policies, the U.S. economy, and wage negotiations are the reasons for not raising interest rates, which is recognized as a source of uncertainty, it may be difficult to raise rates in January. The BOJ will probably emphasize the on-track domestic economy and price trends to keep expectations for January alive, but it is difficult to expect any comments that will cause the yen to buy. It’s up to Governor Ueda to stabilize it at around 155 yen to the dollar.
Skandinaviska Enskilda Banken (Eugenia Victorino, head of Asia strategy in Singapore)
With the Fed more hawkish into 2025, it gives more room for BOJ to continue tightening next year, delivering another hike as early as January. Yet, USD/JPY is still dominated by the Fed outlook. Until the market pulls back from the outsized reaction from the Fed meeting last night, there is very little that can dampen USD/JPY below 154.50.
Credit Agricole CIB (David Forrester, senior strategist in Singapore)
The BOJ has said it needs to continue to monitor in the impacts of movements in financial and the exchange-rate markets on the economy, but there is no mention of a weak yen leading to upside risks to inflation. Importantly, USD/JPY is above 155 and what we think is the BOJ’s comfort zone.
Mitsubishi UFJ Morgan Stanley Securities (Kohei Onishi, senior investment strategist in Tokyo)
The BOJ’s decision to skip a rate hike is offering a sense of relief to the stock market. The decision is likely to support stocks in the afternoon session.
--With assistance from Marcus Wong, Saburo Funabiki, Momoka Yokoyama and Michael G. Wilson.
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