Market Overview:
The Bank of Japan (BOJ) is set to announce its bond purchase tapering schedule on Wednesday, with Japanese yields rising since the market received a heads-up on June 14. The BOJ Policy Board may also provide guidance on potential rate hikes, potentially pushing yields higher. Calls for more communication on future policy changes have increased, with notable comments from Toshimitsu Motegi, who suggested the BOJ should clearly outline plans for “several-staged rate hikes.”
Japanese Yields:
- Ten-year Japanese government bond yields slipped from a high of 1.106% on July 3 to 1.005% on July 17, tracking moves in U.S. and other offshore yields. Yields have since held above this level.
- Analysts predict that a break above the July 3 high could spur a move towards 2.0%, levels not seen since 2006-2007.
BOJ Policy Outlook:
- Although the BOJ will begin tapering bond purchases, any rate hike may still be some time away due to Japan’s fragile economy and controlled inflation.
- The BOJ is likely to remain cautiously hawkish, maintaining upward pressure on Japanese yields through 2025-26.
Yen Performance:
- The yen steadied around 154 per dollar as the BOJ kicked off its two-day monetary policy meeting. Markets expect the central bank to lift rates by 10 basis points to 0.1% and trim bond purchases.
- The yen has been rallying since mid-July, initially triggered by suspected intervention from Japanese authorities and further driven by the unwinding of carry and short trades, along with safe-haven buying amid a global equities sell-off.
Global Central Bank Movements:
- The Federal Reserve and the Bank of England are expected to keep rates unchanged this week before easing policy in the coming months.
- Markets are closely watching for any signals from Fed Chair Jerome Powell on potential rate cuts, which might be hinted at during the Jackson Hole symposium in late August.
Currency Movements:
- The dollar index (DXY) remained little changed at 104.64.
- USD/JPY: The yen was last at 153.96 against the dollar.
- EUR/USD: The euro was nearly flat at $1.0816.
- GBP/USD: Sterling traded at $1.28495, down 0.08% on the day.
- AUD/USD: The Australian dollar fell 0.05% to $0.6546.
- NZD/USD: The kiwi remained mostly unchanged at $0.5876.
Cryptocurrency Market:
- Bitcoin (BTC) fell 0.77% to $66,843.53.
Economic Data:
- Japan’s unemployment rate unexpectedly fell to 2.5% in June, though the jobs-to-applicants ratio weakened slightly to 1.23.
As the BOJ and other central banks prepare to announce their monetary policy decisions, market participants will closely monitor these developments, which are likely to drive significant movements in the currency and bond markets in the coming weeks.
