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A Reuters poll found that 58% of economists surveyed believed the addition of two dovish scholars to the Bank of Japan would not make raising interest rates more difficult.A Reuters poll shows the median forecast indicates the Bank of Japan will raise interest rates to 1.25% in the first quarter of 2027 and to 1.50% in the first quarter of 2028.A Reuters poll of 64 economists indicated that the Bank of Japan will keep its benchmark interest rate at 0.75% on March 19.A Reuters poll found that 60% of economists surveyed expect the Bank of Japan to raise its benchmark interest rate to 1.00% by the end of June (up from 58% in the February poll).March 11th - Amidst the uncertainty stemming from the ongoing conflict with Iran, market expectations for a potential interest rate hike by the Bank of Japan have weakened. Against this backdrop, demand for Japanese five-year government bonds was stronger than the 12-month average. The bid-to-cover ratio for this auction was 3.69, higher than the previous auctions 3.10 and the 12-month average of 3.44. Following the auction, Japanese bond futures narrowed their losses. Soaring oil prices coupled with a depreciating yen have increased the risk of Japan sliding into stagflation, prompting the government to increase fiscal spending and complicating the central banks tightening measures. The five-year yield, sensitive to monetary policy expectations, is currently trading around 1.64%. Strong demand at last weeks 30-year government bond auction indicates that investor demand remains robust despite the war factor. Next weeks 20-year government bond issuance will also be closely watched as investors assess how Middle East tensions might affect Prime Minister Sanae Takaichis fiscal agenda.

As the USD/JPY currency pair nears 137.00, the policy gulf between the Fed and the BOJ widens

Alina Haynes

Jul 25, 2022 11:43

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The US dollar pushed higher against the Japanese yen on Wednesday as investors gambled on a wider policy gulf between the Federal Reserve and the Bank of Japan. Since a small rebound around 136.00 on Friday, the asst has been making steady progress toward the pivotal level of 137.00.

 

On Wednesday, the Fed is likely to raise interest rates to 2.5 percent from their current level of 1.75%. Fed Chair Jerome Powell may announce a rate hike of 75 basis points to combat inflation (bps). At one point, when price pressures were in the double digits, the likelihood of a rate hike of even 1 percent was widely considered a certainty. Long-term inflation expectations fell to 2.8% in July from 3.1% in June, and Wall Street profit growth was weak, forcing the Fed to delay an increase in interest rates.

 

Meanwhile, last week's release of Japan's Consumer Price Index gave hope to those who buy the yen (CPI). After being reported at 2.5%, the National CPI has been revised down to 2.4%. Although core CPI rose from 0.8% to 1.0% since the last report. As long as food and energy costs stayed over 2 percent, the BOJ remained worried. Officials at the Bank of Japan (BOJ) are likely to be pleased with the recent uptick in demand for durable goods.

 

The increasing core CPI in Japan has little bearing on whether or not BOJ Governor Haruhiko Kuroda would make a hawkish remark. The Bank of Japan (BOJ) has promised to keep pumping money into the economy and to sustain its dovish tone.

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