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BoJ guidance seen as key driver for yen versus US dollar
Commerzbank expects the BoJ to hold its overnight call rate steady, but says a more hawkish communication could lift the yen, while boilerplate language risks further weakness.
Commerzbank analyst Volkmar Baur says the Bank of Japan is expected to keep its overnight call rate unchanged at its monetary policy meeting early Friday, a move markets are pricing in at 99.3%. He argues the decision itself is unlikely to be the main factor, instead pointing to the BoJ’s guidance for clues on timing. With inflation around 2% and leading indicators seen rising, Baur says a slightly hawkish tone could “seriously” bring October into play, potentially surprising traders. Under the base case, the market expects rate hikes only about every six months, implying no move until December. However, Baur adds the economic backdrop could allow for an earlier move. He also notes the yen could face downside risk if the BoJ uses boilerplate language similar to past meetings, warning that could push the Japanese currency toward new lows versus the US dollar. He further highlights that at the prior meeting, Governor Kazuo Ueda was unable to attend the press conference due to hospitalization, leaving forward-looking guidance relatively sparse.