Last month, the Bank of Japan implemented its first interest rate hike since 2007, marking the end of Japan's era of negative interest rates. Although the rate hike initially injected vitality and momentum into the yen, it soon began to decline. According to a Bloomberg report, bets against the yen have reached their highest level in 17 years. Additionally, the market anticipates that the US inflation data scheduled to be released on Wednesday could lead to significant volatility in the yen.
Faced with the deteriorating yen environment, the Bank of Japan could no longer sit idly by and began to step in to stabilize sentiment. On April 10, Governor Kazuo Ueda stated in Parliament, "We will not consider changing our monetary policy directly in response to foreign exchange fluctuations." However, his seemingly firm statement was followed by a softer tone, indicating close attention to the impact of the yen's weakness.
Later, Ueda also mentioned that if the yen's continued weakness leads to inflation and hinders the economic and inflation virtuous cycle, the Bank of Japan might consider a policy shift.
Analysts have warned that the US inflation data set to be released on Wednesday could trigger sharp movements in the yen. Any signs of a strong increase in prices would support bets that the Federal Reserve is not in a hurry to cut interest rates, potentially leading to a further surge in the USD/JPY rate.
The market currently expects the US CPI to have increased by 3.4% year-on-year in March, up from 2.8% in February; the month-on-month increase is expected to be 0.3%, slightly below February's 0.4%. Additionally, the core CPI excluding food and energy for March is expected to have risen by 3.7% year-on-year, a slight decline from February's 3.8%; the month-on-month increase is expected to be 0.3%, lower than the previous value of 0.4%.
