How will the increase in the expected interest rates of the BOJ affect USD / JPY?

• Friday, the Bank of Japan is expected to increase to 0.50%.
• All eyes will remain on the language in the policy statement and the Governor Ueda press conference.
• The Japanese yen could witness intense volatility on the announcements of BOJ policy.

The Bank of Japan (BOJ) should largely pass the short -term interest rate from 0.25% to a 17 -year summit of 0.50% in January, at the end of its two -day monetary policy examination Friday.

The Japanese Yen (JPY) should switch to BOJ policy announcements while investors are looking to find new clues to the next political decision of the Central Bank.

What to expect the BOJ interest rate rate decision?

The BOJ will probably start 2025 with a certain action because it remains on the right track to relaunch its rate of pace of rhythm after having taken a break for three consecutive meetings. In July 2024, the Japanese central bank unexpectedly increased rates of 15 basic points (BP) from 0.1% to 0.25%.

The markets have hypothesized that a multitude of warmer than expected inflation readers, the JPY’s current damping and a budget budget strengthened the case for an increase in BOJ rates at the January meeting .

The annual tokyo consumer price index (ICC) increased by 3% in November, compared to 2.6% in October. Central inflation, which excludes food and energy costs, increased by 2.4% during the same period after reporting growth of 2.2% in October. Tokyo inflation figures are largely considered as a main indicator of national trends.

Meanwhile, the annual producer prices index (PPI) of Japan remained at 3.8% in December, mainly driven by high prices of foodstuffs, in particular an increase of 31.8% of goods of goods agricultural. In addition, the Japanese firm has approved a historic budget of $ 732 billion for the financial year from April while limiting a new issue of bonds at its lowest level of 17 years, by Reuters.

The recent Hawkish commentary on the governor of Boj Kazuo Ueda and Vice-Governor Ryozo Himino also underlined an increase in probable rate this week. The EUDA said on January 16 that the members of the board of directors “debate next week’s meeting to increase rates”. In his speech on January 14, Himino noted: “Japan inflation expectations have gradually increased, now about 1.5%. The Japanese economy evolves roughly according to our scenario projecting underlying inflation, the expectations of inflation to move both around 2%. »»

With an increase in almost given rates, the wording of the policy statement and the post-political press conference of Governor Ueda, due at 06:30 GMT, will help determine the path of the next political decision of the bank.

The BOJ should also publish its report on quarterly perspectives and should increase its inflation projections in the middle of the progressive depreciation of the Japanese Yen and a recent increase in the cost of rice, Bloomberg reported, citing people familiar with the problem.

BBH analysts said: “The two -day meeting of the Bank of Japan ends on Friday with an expected increase of 25 pb to 0.5%. The markets brought back the chances of a hike during last week to around 85% after BOJ officials expressed more confidence in wage growth. »»

“In our opinion, the bar for a bellicist surprise is raised because the Boj will want to avoid disturbing the markets as it did in July. As such, the Yen is likely to remain under the drop in pressure while the markets continue to priced in the policy rate to culminate around 1% in the next two years, analysts added. “”

How could the interest rate decision of the Bank of Japan affect the USD / JPY?

Reuters reported last week, citing familiar sources with the central bank’s thought, the Boj should maintain its bellicist position while increasing the rates. The feature hike could be influenced by global financial market developments, such as the return of the President of the United States (United States), Donald Trump, the White House.

If the BOJ is struggling to provide consistent advice on the next policy decision, assuming that it will remain dependent on the data and will make a meeting in terms of meeting by meeting, the Japanese yen is likely to resume his spill against the dollar American (USD).

The USD / JPY could fall hard if the boj alluded to an increase in March rates while expressing increased concerns about inflation.

Any instinctive reaction to the advertisements of the BOJ policy could be temporary before the Governor Ueda presser. Investors will continue to pay particular attention to the pricing talks of US President Donald Trump, which triggers a great reaction on the market.

From a technical point of view, Dhwani Mehta, chief Asian session analyst at FXSTREET, note: “USD / JPY remains confined between the simple 21 -day mobile average (SMA) and the 50 -day variant in the perspective of the confrontation Boj. However, the relative resistance index of 14 days (RSI) is just above 50, which suggests that the pair could break the increase in the increase. »»

“A Hawkish Boj hike could rekindle the USD / JPY correction from more than six months from 158.88, breaking the pair towards the 200 -day SMA at 152.85. The following support is seen in the SMA of 100 days of 151.59. Other drops could question the round level of 151.00. Alternatively, buyers must produce a sustained rupture above the SMA from 21 days to 157.13 to resume the upward trend towards the summits of several months of 158.88. Buyers will then target the psychological level of 160.00, ”adds Dhwani.