Macro Insights: Bank of Japan’s policy tweaks – not yet Macro Insights: Bank of Japan’s policy tweaks – not yet Macro Insights: Bank of Japan’s policy tweaks – not yet

Macro Insights: Bank of Japan’s policy tweaks – not yet

Charu Chanana

Head of FX Strategy

Summary:  Markets went into Bank of Japan’s April policy announcement expecting nothing but an openness to normalize policy, but Ueda surprised with a laid-back policy review spanning up to 18 months which upended yen bulls. Still, he emphasized that this does not mean policy inaction in the meantime, and along with the scrapping of forward guidance, there is still room for market to continue to expect tweaks at the June and July meetings if inflation stays above 3%. For now, JPY will be purely yield-dependent again and Fed’s May decision will guide its path.

The Bank of Japan announcement curbed the enthusiasm of yen bulls for the near term, but options were kept open for the medium to long term. The first meeting of Governor Ueda brought no changes to policy settings, holding the benchmark interest rate at -0.1%, and signalling that the bank will continue with its yield curve control measures for now.

Inflation forecasts were raised across the board, even though the BOJ still expects inflation to moderate in FY2023. Core CPI forecast for FY2023 was raised marginally to 1.8% from 1.6% at the January meeting, and 2% for FY2024 from 1.8% previously. The core-core measure of inflation, which excludes fresh food and energy, saw more drastic upward revisions with FY2023 now expected at 2.5% from 1.8% previously. Ironically, April’s Tokyo CPI, a leading indicator for the nationwide print, surged to fresh over 40-year highs on the core-core measure just before the meeting.

Still, these higher inflation prints mean little as the BOJ wants to wait for signs of wage inflation before taking any policy actions. Despite this year’s spring wage negotiation resulting in 3.8% increase in overall wages, the most since 1993, Ueda seems to be unconvinced that it will be enough to anchor inflation above 2%.

But the central bank also said it will conduct a broad-perspective review of monetary policy over the next one to one and a half years, to study the effects of prolonged accommodative policy on the Japanese economy. While reports of an expected review of policy came in earlier than the policy announcement itself, the timeline reported later during the policy announcement of 1-1.5 years was way longer than what the market had hoped, i.e. tweaks by June/July.

While the review timeline has come in longer-than-expected, this does not mean that there will be no action on policy in the next 18 months. Ueda’s press conference still signalled openness to normalization even within the review framework, and market is likely going to continue to expect tweaks if inflation stays above 3%. Scrapping of forward guidance also signals they want to keep flexibility and keep it easier to tweak policy in a surprise move. Still, it is going to be a very gradual normalization, even if one was to happen, which is a difficult ask for markets that are usually impatient. This suggests that the Japanese yen would go back to being a yield story for now.

Worth noting that Bank of Japan impacts JPY more when yields are sideways to lower elsewhere, and gets less traction if yields re-heat. So, if at all we are forced to mark Fed up to end-2023 policy rate of 5.125% (no rate cuts), USDJPY could run north of 140.00 despite BOJ’s tweaks. But even if BoJ drag feet on tweaks and we start getting recessionary data and Fed marked to 3.00% by early 2024, then USDJPY heads maybe well below 130.00.

For now, the focus will be on the Fed meeting next week with the announcement due on May 3. USDJPY rose above 135.50 following the announcement, and if the Fed comes out more hawkish than expected, we could see USDJPY test the March high of 138. But if global yields continue to slide, we will potentially see yen strengthening. Markets will still continue to expect Ueda to announce some tweaks at the June and July meetings, so that may bring some yen strengthening as well.

Source: Saxo


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 (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. 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
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992