Usdjpy To Decline On Policy Divergence

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Usdjpy To Decline On Policy Divergence

Usd/Jpy To Decline On Narrowing Policy Divergence - Mufg

According to MUFG Bank's economists, the updates from the Bank of Japan and the US Federal Reserve hint at a narrowing policy divergence.

One of the big reasons why the USD/JPY's trading price is at historic highs is the policy difference between the two central banks. While the Bank of Japan maintains the interest rate negatively, the Federal Reserve has hiked the rate to record highs.

As a result of this policy divergence, the USD/JPY is now trading above 148.50, with eyes set on conquering the 150.00 once again.

Boj To Raise Rates Very Soon

However, MUFG believes that the 150.00 level will not be conquered so soon again. According to them, the BoJ is now closer than ever to finally raising the interest rate in the country.

After analyzing the updates from the G10 central banks, MUFG has concluded that most central banks will start to rate cuts. This means even if we don't get any rate hikes from the BoJ, the upcoming rate cuts will shrink the policy divergence between the BoJ and the Fed.

There must be a clear timeline for the first rate cut from the Federal Reserve, but it is expected to materialize in May or June this year.

MUFG added that the BoC, ECB, Fed, and the BoE will likely enter a cutting phase starting from Q2 2024 (April - June).

While the rest of the world is moving toward rate cuts, the Bank of Japan seems to be pushing in the opposite direction. That's why if the BoJ announces its move away from the negative interest rates, it shouldn't come as a surprise.

To conclude, the USD/JPY is expected to drop lower as the interest rate difference between the two central banks will continue to shrink. It shouldn't surprise us if we see the USD/JPY move towards 145.00, 140.00, or even lower.

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