“Welcome to the new governor Ueda, is it a turning point for a different dimension of relief?”
The monetary policies of Japan and the United States, the United Kingdom, and Europe are expanding
The new governor of the Bank of Japan, Kazuo Ueda, who took office on April 9, showed his understanding of former governor Kuroda’s extraordinary monetary easing policy at his first press conference after taking office on April 10, and introduced YCC (yield curve control) “It is appropriate to continue,” he said, referring to current monetary policy. On the other hand, he has indicated a policy of inspection and verification of policies so far, saying, “It would be nice to have an inspection and verification from the point of view of how we should move forward in the future by evaluating it all comprehensively.” It is hoped that by checking the side effects of the extraordinary monetary easing, the move towards normalization will move forward in the future, but for now, as Governor Ueda pointed out, the current policy of monetary easing is expected to have maintain it.
Monetary policy forecasts for the three remaining economies in the four major currencies (US, UK and Eurozone) have also moved.
As a result of aggressive financial tightening so far, concerns about an economic slowdown have spread, the failure of several US regional banks, including Silicon Valley Bank (SVB), which occurred in March, and the Credit Suisse Group, an institution major financial in Switzerland. .management crisis and as a result the main UBS group in the same industryProspects for continued financial tightening have receded sharply around the world following the merger rescue by .
However, concerns have eased, partly due to the positive response from the financial authorities of the countries concerned. On the other hand, although prices are slowing globally, they are still high, and expectations for additional interest rate hikes are being rekindled.
Let’s organize the forecasts of each central bank (as of April 26).
The US Federal Reserve Board (FRB) is likely to raise interest rates for the 10th consecutive meeting of the Federal Open Market Committee (FOMC) in May. Forecasts are divided as to whether there will be another rate hike in June and when the rate cut will begin.
Before the bankruptcy of the SVB, it was believed that a rate rise in June would happen with a high degree of probability, but after the bankruptcy of the SVB, the prospects dropped to almost zero. Since then, expectations for an interest rate rise have risen again, but the short term interest rate market has priced it in the 20% range, remaining in the minority. On the other hand, after the bankruptcy of the SVB, the prospect of a rate cut starting in July has widened, but given the possibility of a rate hike until June, it is unlikely that the rate cut will starting in July.
However, despite Fed Chairman Jerome Powell’s repeated denials that the Fed will cut interest rates this year, not only does the market see it as a near certainty, but it is also pricing in multiple rate cuts.
The Bank of England, which raised interest rates early among developed countries in December 2021, is expected to raise interest rates for 12 consecutive meetings at the Monetary Policy Meeting (MPC) on May 11. Compared to the United States, there are stronger concerns about an economic slowdown, and at the meeting in December last year, before the third meeting, two out of nine members insisted on keeping the policy interest rate unchanged. However, the consumer price index in March rose 10.1% year-on-year, barely falling from the peak of 11.1% reached last year, and there are strong concerns about rising prices, so multiple interest rate hikes are expected. So far, three more rate increases are expected by the end of the year, with successive increases in May and June, followed by another rise in either August or September.
The ECB is also set to raise interest rates further. The euro, which is the united currency of 20 countries, has some members who are reluctant to raise interest rates, partly because of differences in the circumstances of each country. The latest consumer price index for March was +6.9% year on year, a steady decline from +10.6% in October last year, unlike the UK. However, the rate increase will start in July 2022, which is later than the US and the UK, so the policy rate is currently only 3.5%. As a result, not only is a rate hike almost certain at the May 4 board meeting, but there are also some expectations for a 0.5% rate hike. In addition, expectations for an additional interest rate rise in June and an additional rate hike in July if May remains at 0.25% are spreading, with a further rate increase of 0.75% expected by the end of the year.
The exchange rate in the second half of the year will be turbulent
In light of these circumstances, the outlook for exchange rates is as follows.
Concern about the financial system sparked by the bankruptcy of the SVB in March subsided. The United States, the UK, and the euro area are expected to raise interest rates further, while Japan’s Ueda Bank has indicated that it will continue its easing stance for the time being.
This difference in monetary policy stance leads to foreign currency buying and yen selling. However, it is unlikely that the Yen will depreciate beyond last autumn’s 150 yen to the US dollar, as the end of interest rate hikes for all currencies is now in sight. However, it is quite possible that the price will exceed the 138 yen touched in March and move closer to 140 yen. The euro/yen and the pound/yen are likely to try to move up for now as well.
In the second half of this year, once interest rate increases in various countries have ended, the trend is likely to change dramatically. Expectations for an interest rate cut in the United States are rising, while expectations for Japan’s Ueda Bank to review its extraordinary monetary easing policies are expected to weaken the dollar and strengthen the Yen. Depending on the economic situation in the US from the summer onwards, the Yen is expected to end all yen depreciation until around the summer and try to break below the 130 yen mark set in March. Depending on the momentum, it is possible to try the low 127 yen level in January, the lowest price since the beginning of the year. The yen’s appreciation against the euro and the pound, still a long way from interest rate cuts, is likely to be restrained against the dollar/yen, but we expect the yen continue to appreciate to some extent.
After the Golden Week, the weaker yen is expected to hold for now, but the latter half of the year is expected to be turbulent.
Diary of April 26, 2023
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