USD/JPY picked up pace post-BOJ Governor Ueda's speech

The USD/JPY pair remains in a tight range below the key psychological level of 160 early Tuesday. The Japanese yen initially strengthened following the Bank of Japan’s hawkish pause, surprising investors who had anticipated a more dovish stance. The pair dipped to around 159 after the BoJ decision but later rebounded above 159.50, supported by mixed comments from BoJ Governor Kazuo Ueda.

BoJ Keeps Interest Rate Unchanged

The Bank of Japan maintained its key interest rate at 0.75% on Tuesday following a two-day monetary policy review. This decision comes amid rising oil prices and ongoing tensions in the Middle East. The BoJ upheld its hawkish stance, with the number of board members supporting a rate hike increasing from one to three, surpassing market expectations.

The central bank raised its inflation forecast to 2.8% and lowered its GDP growth projection to 0.5%, reflecting the economic impact of the Middle East crisis. The Bank of Japan (BoJ) underlined that the bank will keep a careful eye on the state of the economy in order to make any necessary policy changes in the future.

Cautious Remarks from BoJ Governor Ueda

Japanese currency gains reversed after Governor Ueda declared that there is no immediate need to hike interest rates. He highlighted that future rate hikes will be determined by inflation risks and broader economic conditions, not just geopolitical developments. However, he said that if upside and downside economic risks remain limited, interest rates may be raised. Ueda also emphasized that Japan's economy is moderately resilient, but authorities must be watchful against the potential of a sharper recession caused by supply shocks.

In summary, despite Governor Ueda’s mixed signals, market expectations for a BoJ rate hike by June have increased to 74%, indicating a stronger anticipation of policy tightening. These expectations and intervention risks are limiting losses for the yen. Early Tuesday, Japanese Finance Minister Satsuki Katayama reaffirmed that the government is prepared to intervene in currency markets at any time to strengthen the yen.

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