- The Bank of Japan is set to keep interest rates steady on Thursday.
- All eyes will be on the BoJ’s quarterly forecasts and Governor Kazuo Ueda’s press conference.
- The Japanese Yen could face intense volatility on the BoJ event risk.
The Bank of Japan (BoJ) is widely expected to maintain its short-term interest rate at around 0.25%, following the conclusion of its two-day monetary policy review on Thursday.
The BoJ decision will be accompanied by the bank’s quarterly outlook report, which will be released at around 3:00 GMT. Governor Kazuo Ueda’s post-policy meeting press conference will be held at 06:30 GMT.
What to expect from the BoJ interest rate decision?
The BoJ will likely keep interest rate unchanged for the second meeting in a row after announcing a surprise 15 basis points (bps) rate lift-off in July.
With a status quo outcome fully baked in, the central focus will be on the BoJ’s communication regarding further rate hikes, given Japan’s recent underlying inflationary trends, the rapid depreciation of the Japanese Yen (JPY) and ongoing political upheaval. Japan’s ruling Liberal Democratic Party (LDP) headed by Prime Minister Shigeru Ishiba, lost its parliamentary majority in the snap election on October 27 – the first time in 15 years.
In that regard, the central bank’s updated projections for inflation and economic growth will play a pivotal role in the market’s pricing of the BoJ’s pace and timing of future rate increases.
Tokyo’s inflation data, a leading indicator of nationwide trends and a key factor the BoJ will scrutinize at its policy meeting showed on October 25 that the headline Consumer Price Index (CPI) rose 1.8% year-over-year (YoY) in October, down from September’s 2.1% growth.
Meanwhile, the BoJ’s closely watched broader price trend indicator, the “core-core” CPI –excluding both fresh food and energy costs– edged higher by 1.8 % YoY in the same period, accelerating from an increase of 1.6% in September.
This gauge suggests that the underlying price pressures remain on a gradual uptrend, compelling the BoJ to consider a rate hike at its December policy meeting.
The hawkish expectations could find additional support from the uncertainty around the Japanese political situation, which could exacerbate the pain in the beleaguered local currency. The further decline in the Japanese Yen could also drive up imported inflation and short-term inflation expectations.
Overall, the Japanese central bank is expected to remain in a wait-and-see mode, assessing domestic risks alongside the uncertainties linked to the United States (US) presidential election on November 5 and the economy.
Analysts at BBH preview the BoJ will keep its interest rate unchanged.“Recent comments from Ueda suggest there will be no policy change at this meeting, so the focus will be on the BoJ’s policy guidance. We expect the BoJ to signal again that it’s in no rush to remove policy accommodation, which would further weigh on JPY,” they said.
As for the updated macro forecasts, BBH analysts said they see downside risks.”
How could the Bank of Japan’s interest rate decision affect USD/JPY?
The Japanese Yen recorded a fresh three-month low against the US Dollar (USD), sending the USD/JPY pair close to the 154.00 mark in the lead-up to the BoJ showdown. Further JPY weakness is expected following the BoJ’s likely no-rate change announcement.
The JPY, however, could stage a solid comeback if the BoJ signals another rate hike in December while acknowledging the risks emanating from the recent decline in the domestic currency. The USD/JPY sell-off may be short-lived due to potential downside risks to inflation and growth forecasts.
Conversely, if the BoJ sticks to its cautious rhetoric, supporting Governor Ueda’s latest remarks, the Japanese Yen could see another leg lower. Ueda said on October 23 that “underlying inflation has been rising slowly. It’s still taking time for us to get to 2% inflation in a sustainable manner.”
“When there’s huge uncertainty, you usually want to proceed cautiously and gradually,” Ueda added.
A downward revision to the growth and inflation forecasts could further motivate doves. In such a case, USD/JPY will make another run towards the 160.00 level.
From a technical perspective, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes: “Amid oversold Relative Strength Index (RSI) conditions on the daily chart, USD/JPY buyers seem to have turned cautious ahead of the BoJ policy announcements. However, they remain hopeful, as the 21-day Simple Moving Average (SMA) is on the verge of crossing the 100-day SMA from below. If that occurs on a daily closing basis, a Bull Cross will be confirmed.”
“A dovish BoJ message could revive the USD/JPY uptrend, driving the pair toward the 155.00 supply zone, above which the July 24 high of 155.99 will be challenged. Further up, the door will open to test the 156.50 psychological barrier. On the flip side, a sustained break below the critical 200-day SMA at 151.50 could fuel a meaningful correction toward the 150.30 region, where the 21-day SMA and the 100-day SMA close in,” Dhwani adds.
Japanese Yen PRICE This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.22% | -0.36% | 0.06% | 0.19% | 0.72% | 0.10% | -0.08% | |
| EUR | 0.22% | -0.03% | 0.20% | 0.41% | 1.02% | 0.30% | 0.16% | |
| GBP | 0.36% | 0.03% | 1.06% | 0.56% | 1.11% | 0.42% | 0.45% | |
| JPY | -0.06% | -0.20% | -1.06% | 0.21% | 0.03% | -0.71% | -0.59% | |
| CAD | -0.19% | -0.41% | -0.56% | -0.21% | 0.48% | -0.18% | -0.23% | |
| AUD | -0.72% | -1.02% | -1.11% | -0.03% | -0.48% | -0.74% | -0.84% | |
| NZD | -0.10% | -0.30% | -0.42% | 0.71% | 0.18% | 0.74% | -0.16% | |
| CHF | 0.08% | -0.16% | -0.45% | 0.59% | 0.23% | 0.84% | 0.16% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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