Why the Japanese Yen (JPY) is Weak This Morning
Article published on December 19th, 2024 – 9:46AM UK Time
This morning, the Japanese Yen (JPY) exhibited weakness following cautious remarks from Bank of Japan (BoJ) Governor Kazuo Ueda during a press conference. Markets interpreted the commentary as dovish, reducing the likelihood of immediate tightening, and focused on the need for more data before any significant policy shifts. Below is a breakdown of the key developments contributing to the JPY’s decline.
Key Factors Driving JPY Weakness
1. Reduced Odds of Rate Hike in January
- Governor Ueda hinted that further tightening would require “one more notch” of evidence, suggesting that next year’s wage negotiations and additional data on inflation and economic conditions will be pivotal.
- The probability of a 25bps rate hike at the January 24th meeting fell from 15bps to 12.6bps, implying a reduced chance of immediate action by the BoJ.
- This cautious tone dampened market expectations of a more aggressive policy stance, leading to JPY weakness.
Focus on Spring Wage Negotiations
- Ueda emphasized that comprehensive data on wage trends, particularly the outcomes of Spring 2025 Shunto wage talks, would heavily influence the BoJ’s future decisions.
- The BoJ is expected to take a wait-and-see approach until clearer signals on wage growth emerge in March and April.
Dovish Commentary on Policy Risks
- Ueda avoided specifying what “one more notch” entails but mentioned that skipping a hike could pose risks, such as falling behind the curve. However, he refrained from committing to any immediate action.
- The cautious tone contrasted with market expectations, contributing to selling pressure on the JPY.
Summary
Governor Ueda’s press conference reinforced a dovish stance, reducing the probability of a January rate hike while shifting focus to Spring 2025 wage negotiations. This cautious approach and the emphasis on waiting for additional data have led to weakness in the JPY. The market now anticipates limited action from the BoJ in the near term, favoring USD/JPY buyers and adding selling pressure on the Yen.