Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Head of FX Strategy
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The Bank of Japan (BOJ) left its interest rates unchanged at 0.25%, as expected. While the decision itself wasn’t surprising, Governor Ueda’s dovish remarks hinted at caution regarding further rate hikes.
With inflation risks easing and the central bank closely monitoring wage growth sustainability, the BOJ seemed to lack any urgency on another rate hike. Rising volatility from Japan’s local elections and the U.S. presidential election in Q4 further lowers the likelihood of a rate hike in 2024.
While the BOJ upgraded its view on consumer spending today, domestic growth remains heavily dependent on the global economy’s trajectory—whether it will achieve a smooth soft landing or face a recession. The central bank is also waiting for October services price data and further insight into wage trends before spring wage negotiations next year.
These factors suggest that Governor Ueda is in no rush to raise rates. Inflation expectations remain in focus, but the BOJ is likely to wait for more conclusive data, potentially delaying any rate hike until December or even 2025.
The yen’s bullish outlook remains intact given that the Fed-BOJ yield gap will stay in a downtrend over the medium-term. However, gains could be tempered by both the Fed and BOJ’s patient approach.
With upcoming local and U.S. elections in Q4 expected to drive volatility, a BOJ rate hike this year is increasingly unlikely. While wage growth and inflation trends keep the possibility of another rate hike alive next year, yen gains are expected to be more gradual and choppy in the near term.
However, the yen could still serve as an effective defensive hedge amid rising geopolitical risks. More pronounced yen strength would likely require a sharper downturn in the U.S. economy, particularly if recession fears intensify.
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Forex, or FX, involves trading one currency such as the US dollar or Euro for another at an agreed exchange rate. While the forex market is the world’s largest market with round-the-clock trading, it is highly speculative, and you should understand the risks involved.
FX are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading FX with this provider. You should consider whether you understand how FX work and whether you can afford to take the high risk of losing your money.
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