The US, Euro-Zone, and UK central banks’ moves this week have reportedly lowered general expectations for rates and yields outside of Japan, according to foreign exchange experts at MUFG.
Markets, on the other hand, have great doubts about the Bank of Japan’s ability to halt policy tightening since rates are expected to increase.
The yen and international currency rates will be significantly impacted by this change in relative expectations.
Following the release of the statistics, the dollar to yen exchange rate (USD/JPY) increased from 128.50 to around 129.80.
Markets reduce their expectations for the global rate
MUFG claims that market players have scaled back their expectations for more rate hikes as banks get closer to ending their cycle of rate increases as a result of this week’s central bank meetings and new policy guidance.
Bank of Japan under Pressure, Narrowing of Yield Spreads
The yen will often be supported in international markets due to this change in expectations regarding rates outside of Japan.
The Bank of Japan (BoJ), which has continued to conduct a very aggressive monetary policy and sanctioned just a tiny technical adjustment in December to raise the limit for the 10-year rate to 0.50%, has been the leading worldwide outlier in global markets.
The Pound will likely struggle against the yen, and TD Securities anticipates additional declines in the GBP/JPY exchange rate.
“We remain medium-term bulls on the JPY as we feel the BoJ is on borrowed time and will need to make additional adjustments to the YCC shortly; 155 is near-term support, but we see extension risk to 150,” it continues, with regard to the yen.