Japanese stocks declined on Tuesday, mirroring the trend in regional markets, while the yen remained stable ahead of a crucial Bank of Japan meeting. This meeting might mark a significant shift, potentially ending eight years of negative interest rates and initiating Japan's first tightening of monetary policy since 2007.
Amid a week filled with central bank meetings worldwide, the focus turns to the BOJ, which is anticipated to move away from its ultra-easy monetary policy. It is widely expected that the BOJ will establish a new target for the overnight call rate, guiding it within a range of 0-0.1% by offering 0.1% interest on excess reserves held by financial institutions.
Additionally, the central bank may abandon its bond yield control and halt purchases of risky assets like exchange-traded funds, according to sources cited by Reuters. Japan's Nikkei index was down by 0.73%, and the yen held steady at 149.26 per dollar ahead of the BOJ's decision.
While ING economists suggest that the rate decision itself may not be the focal point, attention is drawn to the BOJ's forward guidance. The market's reaction could vary significantly depending on whether the BOJ signals cautious steps or adopts a hawkish tone in its guidance.
Market participants are also exercising caution ahead of the Federal Reserve's policy announcement on Wednesday, particularly regarding potential adjustments to its projection of rate cuts for the year.
Dollar/yen traders are closely monitoring the Fed meeting, particularly for changes in the 'dot plot', which could drive volatility, according to Chris Weston, head of research at Pepperstone. Elsewhere in Asia, MSCI's broadest index fell by 0.7%, with Chinese stocks and Hong Kong's Hang Seng index experiencing declines.
Investors are also awaiting the policy decision from Australia's central bank later on Tuesday. The Reserve Bank of Australia is expected to maintain steady rates, with focus on any potential softening of its tightening bias.
While most major central banks are anticipated to implement rate cuts starting around June, the RBA stands out with no such expectations priced in for mid-year. The Australian dollar dipped to near two-week lows ahead of the decision.
The Fed is expected to keep rates unchanged on Wednesday, with attention on policymakers’ updated economic outlook, remarks from Chair Jerome Powell, and interest rate projections. Stronger-than-expected inflation reports last week prompted traders to reduce their bets on rate cuts for this year.
Traders are currently pricing in a 54.7% chance of the Fed commencing its easing cycle in June, significantly lower than earlier expectations. Market sentiment hinges on the next inflation report, where a strong figure could question Fed cuts, while a lower figure could bring a June cut back into consideration.
Yields on benchmark 10-year Treasury notes eased slightly in Asian trading, after reaching a three-week high on Monday. Elevated yields bolstered the dollar, which touched a two-week high.
In commodity markets, spot gold hovered around $2,159.10 an ounce, while U.S. crude and Brent crude prices experienced slight declines. Cocoa futures surged over 4% on Monday to hit record highs due to a supply shortage following poor crops in West Africa.
Paraphrasing text from "Reuters" all rights reserved by the original author.
