Macro Insights: Bank of Japan on hold – yen at the mercy of US data and risk sentiment

Macro 5 minutes to read
Charu Chanana 400x400
Charu Chanana

Head of FX Strategy

Summary:  Bank of Japan Governor Kuroda’s last meeting ended without any surprises as policy settings were left unchanged. While incoming data will be key to watch for what tweaks the next governor Ueda can bring, the near-term focus shifts to US data on non-farm payrolls and inflation, as well as the extent of fallout in the US banking sector as the market appears to be a panic mode after SVB’s hasty fundraising.

Kuroda’s parting message lacked sparks

The Bank of Japan kept its policy unchanged at Governor Kuroda’s last meeting of his decade-long tenure. The target band for the 10-year JGB yield was kept unchanged at around 0%, with an upper limit of 0.50% after being raised in December. The BOJ held its short-term rate at -0.1%.

Although data and recent communication had hinted at no change in monetary policy, there were some apprehensions given Kuroda is famous for giving surprises to the market. However, the outcome carried his usual dovish tone, ensuring a smooth handover to incoming Governor Kazuo Ueda who has conveyed policy continuity in his first remarks after being nominated.

Growth and inflation dynamics do not support the case for immediate policy tweaks

The BOJ still stays on the transitory camp for inflation, with today’s statement again highlighting that cheap energy and fading hit from import prices will slow inflation, although it adds that prices will pick up again due to rising wages and changing expectations. Ueda has also signalled a similar narrative, suggesting that he does not see Japan’s inflation as structural or sustainable. Recent data has also shown some softening in Tokyo CPI for February, mainly due to government subsidy measures to keep utility bills from going through the roof. Further measures from PM Kishida to ease cost of living pressures may continue to point towards easing inflation pressures, but wages are being pushed higher as well as companies announce wage hikes on political push, and the evolution of both wages and inflation will be key to watch to gauge how BOJ policy can change under the new Governor.

Meanwhile, growth momentum is weakening and the BOJ policy sounded a caution on exports and production although the overall economic assessment was left unchanged. Still, the recent downside surprises in GDP growth, household spending and wage growth continue to suggest that it will be tough for the BOJ to pare stimulus in the near future.

Market entering panic mode

While the BOJ stayed short of invoking market fears, other global developments have been pointing towards a risk of crisis. Silvergate Capital Corp.’s abrupt shutdown and SVB Financial Group’s hasty fundraising have sent the US banks and the KBW Bank Index plummeting. This together with the expectation of faster tightening from the Federal Reserve and the deepest inversion of the Treasury yield curve is invoking concerns of a deep incoming recession.

BKX Index KBW Bank Index Line  20230310 122948
Source: Bloomberg, Saxo

Key concerns stem from the reason SVB gave for needing to raise capital – startups pulling out cash deposits. This is mainly driven by venture-backed technology and health-care companies that went public last year, and questions are now being raised if SVB is just the tip of the iceberg as higher interest rates continue to push valuations lower presenting broader risks for lenders.

The MSCI Asia Pacific Index dropped as much as 2% on Friday, dragged down by financial shares, keeping the risk-off sentiment alive. China reopening is also still in its early stages and data has been mixed, suggesting lack of catalysts to continue to drive a recovery, and Chinese stocks erased most of 2023 gains in light of the deteriorating risk sentiment. Japanese equities also slipped by 1.5% despite the ultra-loose monetary policy conditions being maintained.

Overall sentiment appears fragile with equities plunging and rate hikes getting priced out as investors flock to bonds in a bid for safe havens.

Yen direction unclear

Domestically, the incoming growth and inflation data, including the outcome of the spring wage negotiations, remains key to watch to assess if Ueda could consider policy normalization, given that he exhibited an openness to being flexible in addition to his message on policy continuity at the testimony last month. Still the message on flexibility was more directed towards responding to market disorders, and there is unlikely to be a pressing need for policy tightening unless inflation takes an ugly turn again.

This means the forthcoming data from the US, particularly the NFP jobs data and the February CPI, will be key to cement the case for a 50bps rate hike from the Fed this month and the primary driver for the Japanese yen in the short run. The base case remains for the data to remain hot, and even if we still get a 25bps rate hike in March, the possibility of the dot plot being revised upwards is high. This could push USDJPY towards the 140 mark.

However, the added concerns over the US banking sector spurring broader risk aversion could bring the yen support in focus. Depending on how far the SVB fallout extends, the yen’s safe haven bid could return and USDJPY could fall. Japanese stocks could remain interesting as monetary policy stays loose, provided the deterioration in global risk sentiment is contained.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.