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JPY: Did They, or Didn’t They?
BoJ’s Stance on Rate Hikes Earlier this week, BoJ Governor Kazuo Ueda and Deputy Governor Shinichi Uchida expressed a willingness to raise rates further this year if inflation trends upward and expectations anchor at 2%. As a result, the market will closely scrutinize Tokyo CPI data. Analysts predict a modest inflation rebound in May after a decline in April, which was influenced by the metropolitan government's decision to make high school free. Analysts expect Tokyo inflation to hover around the BoJ’s 2% target, implying it won't significantly impact market pricing for the BoJ or the JPY. Tokyo’s inflation data is a reliable indicator for nationwide trends.
Today, the BoJ will conduct its JGB outright purchases for various maturities (3-5Y, 5-10Y, 10-25Y). Recently, JGB 10Y yields hit a 12-year high, providing some support for the JPY. Ueda indicated this isn’t an issue, suggesting potential for further yield increases. Investors are watching for any reductions in the BoJ’s JGB purchases. Earlier this month, the BoJ cut its purchases in the 5-10Y segment from JPY475bn to JPY425bn, triggering a rise in 10Y JGB yields.
MoF’s FX Intervention Report
Also today we will see the release of the MoF’s monthly FX Intervention Operations report. This report is expected to confirm BoJ interventions on April 29 and May 1 to support the JPY. While confirmation wouldn't surprise investors, higher-than-expected spending could pressure the JPY by indicating a quicker depletion of reserves. Analysts estimate the BoJ spent about USD55bn intervening in FX markets to support the JPY. However, the MoF had nearly USD160bn in readily available reserves at the end of April. The BoJ could also use futures to sell USD, preserving reserves.
Growing Closer, or Not Just Yet?
The USD is set to lose ground against other G10 currencies this month, though this would only mitigate earlier gains from the year. The USD’s reversal aligns with a relative underperformance of the US economy compared to other developed economies, notably Europe. US GDP for Q1 2024 showed a sharper slowdown than expected at 1.6% QoQ annualized, compared to a stronger Eurozone GDP growth of 0.3% QoQ. The second estimate for US GDP suggests an even greater cooling to 1.3% QoQ annualized, aligning US growth more closely with the Eurozone. Despite this, one quarter’s performance isn’t sufficient to reshape broader macro perceptions. US economists predict a final push in US activity this quarter before a more substantial cooling, potentially impacting USD rankings in 2025 rather than this year.
USA GDP
Sweden and Switzerland Economic Outlooks Today, Sweden is set to publish its second Q1 2024 GDP estimate, with its economy showing no signs of recovery after a year of stagnation. This lag, even against the Eurozone, could continue to suppress the SEK, which also faces a growing rate disadvantage. Conversely, Swiss GDP figures released this morning confirm solid growth this year. However, this might not boost the CHF significantly, as this year’s losses are seen as a healthy correction from overvalued levels, preventing harm to domestic competitiveness.
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