Deciphering the Bank of Japan's Policy Shift: Will Negative Rates Bid Farewell?

What's cooking in Japan?

The Bank of Japan (BoJ) will announce this year's final policy verdict on Tuesday. The BoJ Governor Ueda's comments that the BoJ's policy would be hard to maintain from the year end, had triggered expectations that the BoJ will finally say goodbye to negative rates. There is nothing more than a slim probability for the BoJ to exit negative rates this week, but investors are eager to hear further details about how and when the BoJ will leave the negative rate territory. Concrete details regarding the BoJ's policy plans and/or changes in BoJ's inflation outlook could cause swift moves in yen markets, which became very volatile since Ueda hinted that something is cooking in its kitchen. The USDJPY fell from above 150 to nearly 140 in just two weeks. As such, the pair slipped - a bit too fast – into the bearish consolidation zone, below the major 38.2% Fibonacci retracement on this year's rally.

The market's position regarding the yen couldn't be clearer. Presently, long Japanese yen is the most obvious trade in the currency markets. It is almost too easy. A hawkish signal from the BoJ has the potential to push the USDJPY below the 140 level, even with prevailing oversold conditions. Conversely, should the BoJ disappoint the market once more, any price rallies could draw the attention of top sellers.

Ipek Ozkardeskaya

Ipek Ozkardeskaya provides market analysis on FX, leading market indices, individual stocks, oil, commodities, bonds and interest rates.

She has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked in HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist in Swissquote Bank. She worked as Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020.

She is passionate about the interaction between the economy and financial markets. She has been observing and analyzing a wide variety of relationships between the economic fundamentals and market behaviour over the past decade. She has been privileged to live and to work in the world's most exciting financial hubs including Geneva, London and Shanghai.

She has a Bachelor's Degree in Economics and a Master's Degree in Financial Engineering and Risk Management from the University of Lausanne (HEC Lausanne), Switzerland.