Week in review
The USD/JPY opened the week at 148.95, which was also the weekly low. Over the weekend, media reports had speculated that the BOJ would end the negative interest rate policy due to the outcome of spring wage talks, but the news was broadly as expected and did little to move the market. Dollar buying was slightly dominant on 18 March due to the rise in UST yields, but the market remained in wait-and-see mode ahead of the BOJ and FOMC monetary policy meetings, and the USD/JPY stayed in the 149.00 – 149.50 range in US trading hours. The BOJ voted to end the negative interest rate policy at its board meeting on 19 March. It also voted to end yield curve control (YCC) and suspend purchases of ETFs and other assets in principle, bringing an end to its massive monetary easing program. However, the details of the decision were largely in line with previous media reports, with the statement and Governor Ueda's press conference leading to expectations that the BOJ will not hike rates for some time. The market moved to sell yen on the view that spreads between domestic and overseas yields would not narrow further, and the USD/JPY rose to nearly 151.00 after foreign investors entered the market. Yen selling continued in the morning on 20 March due to a lack of Japanese investors during the spring equinox public holiday. In US trading hours, the USD/JPY rose to 151.82 for the first time since 14 November 2023. The FOMC statement remained largely unchanged, and the dot plot maintained the outlook for three rate cuts this year. At a press conference, Fed Chair Jay Powell indicated that he was monitoring the recent acceleration in inflation and that the Fed would soon start slowing the pace of reducing its balance sheet. The USD/JPY fell to above 150.50 with the dollar weakening because the Fed did not make a hawkish shift as had been expected. The USD/JPY fell to below 150.50 on 21 March as yen buying made headway through to the fixing rate announcement, but it then rebounded after Governor Kazuo Ueda's parliamentary hearing. The pair recovered to above 151.00 after foreign investors entered the market, while UST yields rose following stronger-than-expected US economic data and the Swiss National Bank unexpectedly decided to cut rates. The USD/JPY again extended to beyond 151.50. It softened slightly from a high of 151.86 after the fixing rate announcement on 22 March and was hovering around 151.50 at the time of writing this report (Figure 1). Among major currencies, the Swiss franc was sold after the SNB moved first to cut rates, but the yen was even weaker (Figure 2).
FIGURE 1: USD/JPY
Note: Through 11:00am JST on 22 March
Source: EBS, Refinitiv, MUFG
FIGURE 2: MAJOR CURRENCIES' RATE OF CHANGE VS USD THIS WEEK
Note: Through 11:00am JST on 22 March
Source: Bloomberg, MUFG
