The Bank of Japan will announce its rate decision on Friday, October 30. The rate will almost certainly be left at 1.25%. The main thing is something else: whether the regulator will signal that it will raise it in December.
The BoJ is Japan's central bank. It sets the key rate in the country, and the yen's exchange rate depends on it. The market estimates the probability of a December hike at about 80%.
This matters to traders because of the yen. Any words about December move USD/JPY and other pairs against the dollar. It is convenient to check the publication time in the economic calendar.
What has the BoJ already done?
In September, the regulator raised the rate by 25 basis points to 1.25%. Over the year, tightening has already amounted to 50 points.
- 1.50% - the level to which Commerzbank expects the rate to be brought by December
- about 80% - the probability of such a hike according to the bank's estimate
- 1.25% - the rate that is expected to be kept on Friday
Why is there a reason for tightening?
Inflation in Japan is accelerating. Core inflation excluding fresh food rose to 2.1% year-on-year versus 1.7% a month earlier.
- Excluding food and energy. The indicator rose to 2.4% versus 1.9%.
- The BoJ's target is 2%. Prices are rising faster than the regulator's benchmark.
- Data before the decision. Tokyo inflation for October and unemployment for September will be released.
- Data after the decision. Updated BoJ forecasts for growth and prices, followed by a press conference by the bank's governor, Kazuo Ueda.
For the currency market, the key question is not the rate itself, but the wording about December.
What is the market backdrop?
USD/JPY is holding around 157.90. In the Asian session, the pair returned above 158.00.
- DXY - is falling for the second day and dipped below 102.00 after an intraday high of 102.33
- EUR/USD - above 1.1170
- GBP/USD - approached 1.3400
- Gold - pulled back to $4,000 per ounce
DXY is the dollar index, a basket of the dollar against major currencies.
What does this mean for a trader?
Volatility depends on the wording. Two scenarios are possible.
- Scenario A. A hawkish hint at a December hike produces sharp moves in the yen and other pairs against the dollar immediately after publication.
- Scenario B. A decision without signals shifts the main reaction to Ueda's press conference, that is, an hour to an hour and a half later.
The main thing: you need to watch not the rate figure, but the words of the BoJ and Ueda about December. They are what will set the move in the yen.
Will you hold a yen position overnight?
The BoJ decision and press conference fall during the Asian session. Moscow time, this is early morning, when a position is already hanging overnight. And this is where prop programs start to differ: in some, overnight holding is standard, while in others, for an open trade at the moment the central bank decision is released, the account is simply switched off. Add to this the volume limit per pair and the procedure for calculating the daily loss. It makes more sense to check this across programs today, rather than on Friday after the gap.