Commerzbank’s Volkmar Baur expects the Bank of Japan to keep its overnight call rate unchanged, as fully priced by markets. The focus is on guidance, with inflation around 2% and leading indicators pointing higher. A slightly hawkish communication that seriously puts October on the table could support the Japanese Yen, while boilerplate language risks new lows against the US Dollar.

October hike talk key for Yen

"The Bank of Japan will leave its overnight call rate unchanged at its monetary policy meeting early Friday. The market is pricing this in at 99.3%, and all analysts surveyed by Bloomberg agree. So that won’t be the deciding factor. The outlook will be much more important."

"As we recall, at the last monetary policy meeting, BoJ Governor Kazuo Ueda was in the hospital and was therefore unable to attend or lead the press conference. Consequently, the forward-looking information provided was rather sparse. This could change this time around."

"The market continues to expect that the Bank of Japan will raise interest rates only about every six months - and thus not again until December. However, the economic situation could well allow for an earlier move."

"Inflation has stabilized at around 2%, leading indicators point to rising inflationary pressure, and sentiment indicators suggest a positive economic trend."

"A slightly hawkish tone - one that seriously brings October into play - could therefore be enough to surprise the market and support the Japanese yen. If, on the other hand, the same boilerplate language as usual is used, the yen is likely to hit new lows against the US dollar."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)