Standard Chartered’s Chong Hoon Park and Nicholas Chia expect the Bank of Japan to keep its policy rate at 0.75% on 19 March, with a cautious stance due to uneven Japanese growth and higher Oil prices. They see the path of least resistance for USD/JPY as higher, potentially re-testing 162, supported by positive seasonality and limited Ministry of Finance jawboning.

BoJ caution and Oil support stronger Dollar

"We expect the BoJ to keep the policy rate unchanged at 0.75% at its upcoming 19 March meeting. Policy makers appear focused on confirming that wage increases translate into stronger consumption before proceeding with further normalisation amid the oil price shock."

"Our base case remains for the BoJ to hike rates in Q3, likely at the July meeting. We maintain our terminal BoJ rate projection at 1%, although the risk is likely skewed to the upside (i.e. the BoJ hikes more than expected)."

"We think the path of least resistance for USD/JPY is higher, potentially testing the highs of 162 – which last prompted FX intervention by the Finance Ministry in July 2024 – amid higher-for-longer oil prices in the near term."

"Recent verbal intervention has been limited in intensity and magnitude, which may signal its unwillingness to lean against the market amid broad-based USD strength."

"USD/JPY seasonality typically turns positive in the latter half of March on window-dressing flows as well."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)