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The Bank of Japan (BoJ) is set to leave its short-term rate target unchanged in the range between 0% and 0.1% on Friday, following the conclusion of its two-day monetary policy<\/a> review meeting for April. The BoJ will announce its decision on Friday at around 3:00 GMT.<\/p>\n The BoJ hiked the interest rate for the first time in 17 years in March, lifting Japan out of the negative interest rate policy (NIRP) for the first time since 2016.<\/p>\n With a steady policy widely expected, the markets\u2019 attention will remain on the BoJ\u2019s quarterly inflation and growth forecasts and the probable changes in the policy statement for fresh hints on the timing of the Bank\u2019s next rate increase.<\/p>\n Markets are expecting the BoJ to hike rates again this year, with odds split between the chance of a lift-off in July, or sometime in the October-December quarter, according to Reuters.<\/p>\n Kyodo News<\/a> Agency reported on Friday, citing sources familiar with the BoJ thinking, that the Japanese central bank is mulling an upward revision to its inflation outlook for fiscal year 2024 from the current 2.4%. The bank is also seen raising its forecast for fiscal year 2025 from 1.8% to around 2.0% while forecasting Japan’s core inflation to be around 2% in fiscal 2026, the sources added.<\/p>\n These expectations hold even as Japan\u2019s core Consumer Price Index (CPI) \u2013 a measure excluding fresh food and energy costs closely watched by the BoJ \u2013\u00a0 moderated to 2.9% in March after increasing 3.2% in February. It was the first time since November 2022 that core inflation fell below 3%.<\/p>\n Easing price pressures in Japan fail to deter the BoJ\u2019s path forward on interest rates, as the recent depreciation of the Japanese Yen (JPY) is likely to significantly push up inflation. Further, the BoJ focus remains on the potential increases in the services inflation and wages to determine the appropriate time for the next rate hike.<\/p>\n Japanese firms offered their biggest wage hikes in 33 years this year but the inflation-adjusted real wages have continued to decline for nearly two years.<\/p>\n When asked about the possibility of further rate hikes this year, in an interview with the Asahi newspaper earlier this month, BoJ Governor Kazuo Ueda<\/a> said that “it’s dependent on data.\u201d “We’ll adjust interest rates<\/a> according to the distance towards sustainably and stably hitting 2% inflation\u201d, Ueda added.<\/p>\n On Tuesday, Governor Ueda said that the BoJ will raise rates again if trend inflation accelerates toward its 2% target as expected. Japan’s Weighted Median Inflation Index, a key measure of the country\u2019s trend inflation, rose at its slowest pace in 11 months to 1.3% in March, the latest data published by the Bank of Japan (BoJ) showed on Tuesday.<\/p>\n Governor Ueda\u2019s remarks imply that the central bank is shifting to a more discretionary approach in setting policy. The BoJ could remain on track to deliver another rate hike this year as it gathers more confidence that Japan will sustainably achieve its 2% price target. Therefore, the country\u2019s trend inflation, wage growth and consumption data will hold more importance than the central bank\u2019s quarterly inflation projections in determining the Bank\u2019s future interest rate decisions.<\/p>\n Analysts at BBH preview the BoJ policy announcements, noting that \u201cwe are sticking to our view that the BoJ tightening cycle will remain very modest.\u00a0 The market agrees and is pricing in only 20 bp of tightening in 2024 and 50 bp over the next two years.\u00a0 Such a modest cycle would likely keep upward pressure on USD\/JPY.\u201d\u00a0<\/p>\n \u201cUpdated macro forecasts will be released.\u00a0 Reports emerged suggesting the BoJ may raise its inflation forecast for FY2024 from 2.4% currently at this meeting.\u00a0 However, March CPI data last week came in lower than expected and suggests falling price pressures, so the revision is likely to be minor,\u201d the analysts explained.<\/p>\n If the BoJ policy statement delivers a hawkish tone, indicating that the next rate hike could be as early as July, the Japanese Yen is likely to see a fresh upswing against the US Dollar (USD). The USD\/JPY pair would then initiate a corrective downtrend toward the 150.00 level.<\/p>\n On the other hand, if the central bank suggests that they would cautiously monitor the likelihood of achieving 2% trend inflation to gauge the next rate increase, it could be read as dovish. In such a case, the Japanese Yen could crash to a new 34-year low against the US Dollar<\/a>.<\/p>\n It\u2019s worth noting that the Japanese Yen tends to weaken on BoJ decision days. It has done so for eight straight and nine of the past ten meetings, per BBH Analysts.<\/p>\n From a technical perspective, Dhwani, Senior Analyst at FXStreet<\/a>, notes: \u201cAmid extremely overbought Relative Strength Index (RSI) conditions on the daily chart<\/a>, a USD\/JPY correction seems long overdue. Should a hawkish BoJ guidance spark a Japanese Yen rally, the pair will pull back sharply toward the 21-day Simple Moving Average (SMA) at 153.19. Ahead of that level, the April 23 low of 154.55 could challenge bearish commitments. If the corrective decline gains traction, USD\/JPY could accelerate toward the 50-day SMA at 151.28.\u201d<\/p>\n \u201cOn the flip side, the relentless vertical rise could extend toward 156.50, with buyers aiming for the 160.00 level predicted by a senior Liberal Democratic Party official to be a probable intervention point for the Japanese authorities,\u201d Dhwani adds.<\/p>\n The Bank of Japan (BoJ) publishes its Outlook Report<\/a> every quarter after deciding the text in its January, April, July and October Monetary Policy Meetings. The report includes an assessment of economic activity and prices, the upside and downside risks to the economy, and outlines the BoJ\u2019s views on the future course of monetary policy.<\/p>\nWhat to expect from the BoJ interest rate decision?<\/h2>\n
How could the Bank of Japan interest rate decision affect USD\/JPY?<\/h2>\n
Economic Indicator<\/h2>\n
BoJ Outlook Report<\/h3>\n