Traders Probe BOJ To Analyze Its Take On Interest Rates, Yen Price To Surge

Traders Probe BOJ To Analyze Its Take On Interest Rates, Yen Price To Surge

January 20, 2023 0 By Wiley McDermott

One of the most recent trading sessions has yet again proven that the Japanese yen has not lost its strength against the US dollar.

The trading price of the yen keeps on gaining momentum and strength against the dollar. This has the traders betting on further surges in the trading price of the yen as they are hoping for more aggression from the BOJ.

The data shows that the trading price of the US dollar has plummeted substantially against the trading price of the yen. In terms of figures, the drop rate of the dollar versus the yen is 0.26%.

After the dip, the value of the yen against the dollar stands at 128.20.

Expectations of the Traders

Traders are expecting that the Bank of Japan will continue remaining hawkish against the rising inflation rates. This means that they will continue increasing the interest rates to make it happen.

If what the traders are hoping turns out to be true, then the value of the yen will indeed rise significantly. This would suggest that the trading value of the dollar would continue depleting against the yen.

Despite the speculations, all eyes are on the Bank of Japan to see what decision it makes on the interest rate hikes.

The BOJ Side

For now, the BOJ has given no indications about increasing its aggression on the rising inflation rates. They are sticking with their 10-year Japanese bond yield cap that they had set to 0.5% in the month of December 2022.

However, the traders are hoping that the BOJ may change that and may increase it significantly. They are hoping that the BOJ may increase the cap to 0.25%.

Statement by Kuroda Haruhiko

Kuroda Haruhiko, the governor of the Bank of Japan recently issued a statement addressing the probing of the traders.

He revealed that last month, the monetary policy surprise they gave was nothing more than a deviation. However, it ended up pushing the price of the yen against the trading price of the dollar.

He clarified that the deviation is not to be mistaken with the BOJ lowering its hawkish stance against the measures of the monetary policy.

Kuroda stated that the Japanese government bonds had been pushed higher by global bond pressures. However, they wanted to make corrections to the yield curve.

For this purpose, they had to make the necessary changes and adoption deviations from their end to make it happen.

Investors are Not Buying It

Although Kuroda tried explaining the entire situation, the investors are not ready to fully believe what he had to say.

The investors have continued selling the Japanese government bonds in order to increase the selling pressure as much as possible. As a result, the yields are being pushed higher while the prices are moving lower.

The data shows that on three consecutive trading days, the Japanese bond cap for the 10-year yield ended up crossing 0.5%.

For now, the Bank of Japan is forced to carry out the purchases of the bond, which has hit a record. The BOJ has done this with hopes of defending the cap.

If the BOJ ends up abandoning the process, then as per some analysts, the yen will gain strong firepower. This firepower could prove to be extremely damaging to the trading price of the dollar.

In such a case, the trading price of the dollar versus the yen may trip by 3%, which would be a huge decline for the dollar price. In terms of numbers, the value of the dollar may fall below 125 yen versus the yen.

Inflation Forecast by the BOJ

There are high expectations with the BOJ increasing their forecast for the inflation rates. They may lift its forecast for inflation to 1.8% on a YOY basis.

At the moment, the forecast set by the BOJ for inflation is at 1.6%.

If the forecast is risen by the BOJ, then it would mean that they may remain hawkish with the interest rate hikes.