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🏦🇯🇵Cable FX Macro Weekly Note: BoJ January Policy Decision

**As seen in Risk In The Week report 01/19/24, subscribe at

The Bank of Japan held rates unchanged at its December meeting but there was speculation for a potential shift in January. While inflation in Japan remains above target, price metrics have kept their general downtrend. Japan's national CPI rose 2.6% Y/y in December, however, the ultra-core figure accelerated to 2.8%. The latest data showed real wages continuing to be depressed, this is likely to keep the BoJ balanced as it has mentioned that an improvement will be a pre-requisite for the central bank to adjust policy. Quarterly activity data is not impressive, Q3 output contracted by 2.9% Q/q, which is the lowest pace since 2020. The Noto New Year's earthquake has dampened expectations for a rebound in the near term.

Recently, the Nikkei reported the BoJ is likely to revise its CPI outlook through FY 2025 and said that the central bank will keep its 2% CPI view. Analysts at Barclays said that the yen could weaken further as expectations for policy divergence fail to materialize, they see USD/JPY holding upside risks and point to the 152.0 spot level in the near term. However, Barclays warned that the yen is likely to rise in the Spring as DM central banks start cutting rates while the BoJ is likely to tighten policy. Strategists at MUFG said that markets expect no change from the BoJ in January and the performance on USD/JPY will be driven by forward guidance. MUFG sees the yen weakening further if the central bank fails to provide a strong signal for a rate hike in either March or April.



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