USD/JPY Sharply Lower Ahead of Kuroda’s Last Meeting

03/09/2023

1 minute read

2023.03.09 10:05

The Japanese yen is showing strength on Thursday. In the European session, is trading at 136.27, down 0.79%.

Kuroda’s last hurrah

After 10 years at the helm of the Bank of Japan, Governor Kuroda chairs his final policy meeting on Friday. Traditionally, BoJ governors have not made policy changes at their last meeting, and in all likelihood, Kuroda will not go out into the night with guns blazing.

Still, Kuroda likes to keep the markets guessing and his tweak of the 10-year yield target range in December completely blindsided traders and jolted the financial markets. This has kept the markets on alert for Kuroda tweaking or even abandoning the BoJ’s yield curve control (YCC) policy. The bond market remains dysfunctional due to the YCC, even with the band widening in December. Governor-elect Ueda has stated that the current policy is appropriate, but this is to be expected at this sensitive time of changing the guard at the BoJ. Ueda will be under pressure right away to make changes to the YCC, and that could occur as soon as he takes over in April.

Fed Chair Powell didn’t add anything new at a second day of testimony on Capitol Hill, but the markets have been scrambling since his hawkish comments to lawmakers a day earlier. Powell’s said that the Fed would accelerate the pace of interest rate increases if that was what the data dictated. The markets have fallen in line and have priced a 50-basis point hike at the March 22 meeting at 77% according to the CME Group (NASDAQ:), compared to 25% before Powell’s testimony on Tuesday.

Powell’s hawkish stance has also fuelled expectations that the peak rate will be higher than expected. In December, the Fed projected a rate of 5.1%, but that is clearly out of date. The markets have priced in a peak rate of around 5.5% and Blackrock (NYSE:), the world’s largest asset manager sees rates peaking at 6%. Currently, the benchmark rate stands at 4.75%.