FED Rate Hike Speculation; BOJ Maintains Accommodative Stance
May Inflation Data Release to Heighten Expectations of Rate Hike
Next Tuesday, the United States is set to unveil its May inflation figures, impacting the Federal Reserve's upcoming monetary policy decision. Market forecasts anticipate a year-on-year increase of 4.2% in the Consumer Price Index (CPI), while the core annual CPI is expected to rise to 5.6%, surpassing the previous 5.5%. These figures, if realized, are likely to intensify speculation of an imminent rate hike prior to the Fed's announcement on Wednesday. Should the outcome exceed expectations, substantial volatility across the foreign exchange market is expected. Concurrently, the Federal Reserve's decision will contribute to market noise, with a pause in rates expected but accompanied by a hawkish message signaling the possibility of further rate hikes in the near future. In the event that the Fed confirms its commitment to monetary tightening, fears could trigger a stock market collapse while bolstering the US dollar.
Bank of Japan (BOJ) Maintains Accommodative Stance Amid Economic Uncertainties
The Bank of Japan (BOJ) recently signaled that inflation has exceeded initial projections. However, this observation does not automatically trigger an interest rate increase. BOJ Governor Kazuo Ueda emphasized the need to maintain highly accommodative policies until sustainable wage growth accompanies rising prices. Consequently, the BOJ is anticipated to maintain its current target short-term interest rate of -0.1% and a 0% cap on the 10-year bond yield, consistent with its yield curve control (YCC) policy. Furthermore, the BOJ is expected to adopt a slightly pessimistic view on exports and production due to weakened demand from the United States and China. In April 2023, the BOJ highlighted stagnation in exports and production. Nonetheless, as the central bank of the world's third-largest economy, the BOJ remains optimistic that the country will experience a moderate recovery driven by increased post-pandemic consumption, offsetting the impact of weak exports.
Inflation is projected to surpass the BOJ's initial expectations. Analysts warn of the risks posed by rising inflation and the potential economic slowdown in Japan due to a severe overseas recession. While the BOJ will not issue new inflation projections next week, it is likely to signal during Governor Ueda's briefing session that inflation is exceeding initial projections. Analysts anticipate that the BOJ will revise its inflation forecast upward during its next quarterly review, considering the persistent price increases by many companies. However, the BOJ's forecast of core consumer inflation for the current fiscal year, at 1.8%, remains below analysts' projection of 2.6%.
USDJPY Technical Analysis: Bullish Consolidation Amidst Channel, Watch for MFI Indicator and Resistance Bounce
The USDJPY pair is currently experiencing a period of consolidation within a bullish channel, indicating a potential continuation of the upward trend. However, traders should closely monitor the Money Flow Index (MFI) indicator for a reading of 80, as it could signal a possible shift in market sentiment. Until the MFI remains below 80, the price has the potential to sustain its bullish trajectory. Nevertheless, caution is advised as a pullback towards the bearish direction may occur if the price encounters resistance and subsequently bounces off that level. In such a scenario, a bearish phase could ensue, with the price targeting the support line of the bullish channel.
Next Tuesday, the United States is set to unveil its May inflation figures, impacting the Federal Reserve's upcoming monetary policy decision. Market forecasts anticipate a year-on-year increase of 4.2% in the Consumer Price Index (CPI), while the core annual CPI is expected to rise to 5.6%, surpassing the previous 5.5%. These figures, if realized, are likely to intensify speculation of an imminent rate hike prior to the Fed's announcement on Wednesday. Should the outcome exceed expectations, substantial volatility across the foreign exchange market is expected. Concurrently, the Federal Reserve's decision will contribute to market noise, with a pause in rates expected but accompanied by a hawkish message signaling the possibility of further rate hikes in the near future. In the event that the Fed confirms its commitment to monetary tightening, fears could trigger a stock market collapse while bolstering the US dollar.
Bank of Japan (BOJ) Maintains Accommodative Stance Amid Economic Uncertainties
The Bank of Japan (BOJ) recently signaled that inflation has exceeded initial projections. However, this observation does not automatically trigger an interest rate increase. BOJ Governor Kazuo Ueda emphasized the need to maintain highly accommodative policies until sustainable wage growth accompanies rising prices. Consequently, the BOJ is anticipated to maintain its current target short-term interest rate of -0.1% and a 0% cap on the 10-year bond yield, consistent with its yield curve control (YCC) policy. Furthermore, the BOJ is expected to adopt a slightly pessimistic view on exports and production due to weakened demand from the United States and China. In April 2023, the BOJ highlighted stagnation in exports and production. Nonetheless, as the central bank of the world's third-largest economy, the BOJ remains optimistic that the country will experience a moderate recovery driven by increased post-pandemic consumption, offsetting the impact of weak exports.
Inflation is projected to surpass the BOJ's initial expectations. Analysts warn of the risks posed by rising inflation and the potential economic slowdown in Japan due to a severe overseas recession. While the BOJ will not issue new inflation projections next week, it is likely to signal during Governor Ueda's briefing session that inflation is exceeding initial projections. Analysts anticipate that the BOJ will revise its inflation forecast upward during its next quarterly review, considering the persistent price increases by many companies. However, the BOJ's forecast of core consumer inflation for the current fiscal year, at 1.8%, remains below analysts' projection of 2.6%.
USDJPY Technical Analysis: Bullish Consolidation Amidst Channel, Watch for MFI Indicator and Resistance Bounce
The USDJPY pair is currently experiencing a period of consolidation within a bullish channel, indicating a potential continuation of the upward trend. However, traders should closely monitor the Money Flow Index (MFI) indicator for a reading of 80, as it could signal a possible shift in market sentiment. Until the MFI remains below 80, the price has the potential to sustain its bullish trajectory. Nevertheless, caution is advised as a pullback towards the bearish direction may occur if the price encounters resistance and subsequently bounces off that level. In such a scenario, a bearish phase could ensue, with the price targeting the support line of the bullish channel.