Dear clients,
The BOJ is expected to leave monetary stimulus unchanged at one of its last meetings under Governor Haruhiko Kuroda this week, while investors look for hints about the central bank’s path after Kuroda’s term ends.
The yen fell sharply in early deals on Monday after reports of a potential change in a key agreement between the government and the central bank fueled speculation that policymakers are going for a hawkish reversal.
The Japanese currency gained 0.6% after Kyodo said on Saturday that Prime Minister Fumio Kishida may try to renegotiate a decade-old agreement with the Bank of Japan and consider a more flexible approach to the 2% inflation target, which put would end ultra-dovish politics. However, after a senior government official denied the report, the decline resumed.
The yen has been the worst-performing major currency this year, falling more than 15% against the dollar. Kuroda’s insistence on buying huge amounts of government bonds meant that Japan’s yields were capped while they soared elsewhere in the world as most central banks raised interest rates to fight inflation.
Kuroda stressed that there will be no rate hike until the bank confirms stable inflation supported by rising wages. The outcome of the annual spring wage negotiations will be a key indicator, the results of which will be known just a few weeks before Kuroda completes his decade of service.
There is an expectation among investors and economists that Kuroda’s successor will demand a policy review some time after taking office.
