Negative Real Rates Help Japanese Yen To Further Easing
Fed officials last week again signaled the U.S. central bank has no pressing need to cut rates. The message gave the dollar an extra tailwind that pushed the yen to a 10-week low as traders reduced bets on how quickly the Bank of Japan (BOJ) might raise rates.
BOJ Governor Kazuo Ueda said on Friday there was a high chance for easy monetary conditions to persist even after the central bank ends its negative interest rate policy, which the market expects to happen as early as next month.
The yen was little changed at 161 per Euro.
Japanese Finance Minister Shunichi Suzuki said he was "watching FX moves carefully," uttering a well-worn phrase for the first time since Jan. 19. Traders were unfazed by the warning.
The next major scheduled U.S. data release is CPI for January on Tuesday.
Traders have all but ruled out a cut at the Fed's next policy meeting in March, versus a chance of 65.9% a month ago, according to CME Group's FedWatch Tool. It shows around a 60% chance of a cut by the Fed at its May meeting.
By the way, short-term so-called 'real interest rates' (difference between BOJ Interest Rate
JPINTR
and Japanese YoY inflation
JPIRYY
) turned pretty down in 2023 to minus 400 b.p. (45-years lows) - levels that were not seen in Japanese economics since mid-1970s (right hand side).
In this time Japanese, 'a real interest rate' is around minus 270 b.p. and still very far below neutral Zero-level.
💡 The real interest rate is an interest rate that has been adjusted for inflation to reflect the real cost of funds to a borrower and the real yield to a lender or an investor.
💡 The main technical graph (left hand side) indicates on very strong bullish momentum over the past 3 years due to pro-inflation fears, that perhaps will push Fx
EURJPY
pair further to its main targeted 185-yen level.
💡 30- and 60-day correlations between
USDJPY
and
EURJPY
are above +0.70, the two currency pairs tend to move in tandem. A rise in EUR/JPY should also see the cross climb.
BOJ Governor Kazuo Ueda said on Friday there was a high chance for easy monetary conditions to persist even after the central bank ends its negative interest rate policy, which the market expects to happen as early as next month.
The yen was little changed at 161 per Euro.
Japanese Finance Minister Shunichi Suzuki said he was "watching FX moves carefully," uttering a well-worn phrase for the first time since Jan. 19. Traders were unfazed by the warning.
The next major scheduled U.S. data release is CPI for January on Tuesday.
Traders have all but ruled out a cut at the Fed's next policy meeting in March, versus a chance of 65.9% a month ago, according to CME Group's FedWatch Tool. It shows around a 60% chance of a cut by the Fed at its May meeting.
By the way, short-term so-called 'real interest rates' (difference between BOJ Interest Rate
JPINTR
and Japanese YoY inflation
JPIRYY
) turned pretty down in 2023 to minus 400 b.p. (45-years lows) - levels that were not seen in Japanese economics since mid-1970s (right hand side). In this time Japanese, 'a real interest rate' is around minus 270 b.p. and still very far below neutral Zero-level.
💡 The real interest rate is an interest rate that has been adjusted for inflation to reflect the real cost of funds to a borrower and the real yield to a lender or an investor.
💡 The main technical graph (left hand side) indicates on very strong bullish momentum over the past 3 years due to pro-inflation fears, that perhaps will push Fx
EURJPY
pair further to its main targeted 185-yen level. 💡 30- and 60-day correlations between
USDJPY
and
EURJPY
are above +0.70, the two currency pairs tend to move in tandem. A rise in EUR/JPY should also see the cross climb.