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Bank of Japan Expected to Abandon Negative Rates Amid Strong Wage Deals

1 month ago

Anticipation is rife among Bank of Japan (BOJ) observers, with a staggering 90% of them predicting authorities will discard their negative-rate policy come Tuesday. The speculation gained traction following news of Japan’s largest union group securing the most robust wage agreements in over three decades. In response, the yen exhibited weakness against the dollar, while stock markets surged, buoyed by the yen’s decline and the prevailing belief that even if the central bank opts for a hike, the currency won’t strengthen significantly. It appears that the BOJ’s intentions are fully priced in, with market focus now shifting towards the Federal Reserve’s activities this week.

Meanwhile, all eyes are on the Fed’s policy meeting slated for Wednesday, as its outcome may shape the trajectory of global stocks in the upcoming quarter. Prior to the blackout period, Chairman Jerome Powell hinted at the central bank nearing the threshold of confidence required for rate cuts, while internal discussions revolved around the depth and extent of those potential reductions.

While the Fed’s faith in inflation might have waned slightly, it remains committed to the disinflationary trend and may maintain its median forecast of three cuts this year. However, this stance might seem optimistic, considering the various inflationary reports on the horizon and the ample time available between now and June to pivot if necessary.

Elsewhere on the economic front this week, the Reserve Bank of Australia is expected to extend its rate pause, while the Bank of England is poised to unveil its policy decisions. Eurozone inflation data is eagerly awaited.

In the commodities arena, oil witnessed a modest uptick following its most significant weekly gain in a month, spurred by positive macroeconomic indicators from China and heightened geopolitical tensions due to Ukrainian attacks on Russian refineries. Conversely, gold experienced a slight dip.

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