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Yen dips ahead of BOJ policy meeting

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Written by:
Myrsini Giannouli

28 April 2023
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Important calendar events

  • JPY: Tokyo Core CPI, Unemployment Rate, Retail Sales, BOJ Outlook Report, Monetary Policy Statement, BOJ Policy Rate, BOJ Press Conference
  • EUR: French and Spanish Flash GDP, German and French Preliminary CPI, French Consumer Spending, Spanish Flash CPI, German Unemployment Change, Italian and German Preliminary GDP, Eurogroup Meetings, Eurozone Preliminary Flash GDP
  • Core PCE Price Index, Employment Cost Index, Personal Income, Personal Spending, Chicago PMI, Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations


The dollar rallied on Thursday, with the dollar index rising to the 101.6 level. US Treasury yields rose slightly, with the US 10-year bond yielding approximately 3.51%. 

US economic data released on Thursday were overall disappointing, pushing the dollar down. Advance GDP data for the first quarter of the year showed that the US economy expanded by 1.1% against expectations of 2% and a 2.6% growth in Q4 of 2022. Advance GDP Price Index on the other hand rose by 4.0% in Q1 of 2023, versus 3.7% expected. This index is a measure of inflation and indicates that price pressures remain high. US Unemployment Claims on Thursday were more optimistic than anticipated at 230K, dropping below expectations of 247K.

The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. The Federal Reserve is holding its next policy meeting in May and market odds are in favor of a 25-basis point rate hike rather than a pause in rate hikes. Markets are anticipating a pause in rate hikes after this last interest raise and a high probability of rate cuts starting in November, depending on economic conditions and inflationary pressures.

Recent US inflation data showed that price pressures are decelerating. US Consumer Price Index went down to 5.0% year-on-year in March from 6.0% in February. Monthly CPI rose by just 0.1% in March, indicating that inflation cooled significantly from February’s 0.4% print. Core CPI, which excludes food and energy, was in line with expectations, rising by 0.4% every month. PPI data last week fell below expectations, strengthening the notion that inflationary pressures are easing. PPI in March dropped by 0.5%, against expectations of remaining the same as in February. 

Final GDP data for the final quarter of 2022 were disappointing, showing that the US economy expanded by 2.6% against expectations of a 2.7% growth. 

There is no Fed commentary this week, as the Fed’s blackout period has started, ahead of the next policy meeting on May 3rd

Several strong economic indicators are due on Friday and may affect the dollar. These include Core PCE Price Index, Employment Cost Index, Personal Income, Personal Spending, Chicago PMI, Revised UoM Consumer Sentiment, and Revised UoM Inflation Expectations. The core PCE Price Index especially, is the Federal Reserve's primary inflation measure. As such, it has the potential to influence the Fed’s next rate decision and may cause volatility in dollar prices.



The Euro retreated against the dollar on Thursday and EUR/USD dropped to the 1.100 level. If the currency pair goes up, it may encounter resistance near 1.107. If the EUR/USD pair declines, it may find support at 1.083. 

Hawkish ECB rhetoric provided support for the Euro this week. ECB member Philip Lane stated that the central bank would need to raise interest rates again at its next policy meeting. ECB’s Isabel Schnabel was even more hawkish, hinting that a 50-basis point rate hike is not off the table.

ECB Vice President Luis de Guindos stated last week that the ECB is unlikely to return to providing forward guidance on its next policy moves given the uncertainty in the outlook. De Guindos further warned that this approach will likely be maintained until the evolution of inflation and the effects of the ECB’s measures become clearer.

The ECB raised interest rates by 50 bp at its monetary policy meeting in March, bringing its main refinancing rate to 3.5%. The ECB stressed the importance of a data-driven approach to monetary policy moving forward. 

Headline inflation in the Eurozone eased to 6.9% year-on-year in March from 8.5 % in February, against expectations of a 7.1% print. Core CPI, which excludes food and energy, went up slightly to 5.7% on an annual basis in March from 5.6% in February, hitting a record high. 

Recent GDP painted a grim picture of the Eurozone economy. The GDP print for the final quarter of 2022 was zero, indicating that the EU economy is stagnating and recession looms.

Important fundamentals due on Friday for the Eurozone include French and Spanish Flash GDP, German and French Preliminary CPI, French Consumer Spending, Spanish Flash CPI, German Unemployment Change, Italian and German Preliminary GDP, Eurogroup Meetings, Eurozone Preliminary Flash GDP. 

EURUSD 1hr chart



The Sterling traded sideways against the dollar on Thursday and the GBP/USD pair oscillated around 1.246. If the GBP/USD rate goes up, it may encounter resistance near 1.254, while support may be found near 1.235. 

CPI data last week showed that inflation in the UK remains high. Headline inflation remained above the 10% level for the 7th consecutive month, dropping to 10.1% year-on-year in March from 10.5% in February. Even though inflation showed signs of cooling, it exceeded expectations of a 9.8% print. Price pressures remain high in the UK, forcing the BOE to continue its policy of economic tightening at the risk of economic recession.  British Chancellor Jeremy Hunt stated that the CPI figures show that efforts to drive inflation down must continue.

The BOE raised interest rates by 25 bp at its meeting in March, bringing the official bank rate to 4.25%. BOE is expected to continue hiking rates by 25-bp at its next policy meeting in May. Market odds are in favor of more BOE rate hikes up ahead after last week’s hot inflation print. The BOE is not likely to pause rate hikes yet and many analysts predict no rate cuts at all within the year if inflation remains high.

The UK economy registered stagnation in March according to recent GDP data. Monthly GDP dropped to zero, falling below expectations of 0.1% expansion. In addition, the IMF has downgraded the UK’s growth forecast, predicting that the British economy will contract by 0.6% this year, which is also consistent with BOE forecasts.

The UK’s grim economic outlook limits policymakers’ ability to increase interest rates sufficiently to rein in inflation. The British economy is struggling, and policymakers will have to assess how much tightening it can withstand to bring inflation down.

GBPUSD 1hr chart



The Yen retreated against the dollar on Thursday and USD/JPY climbed to the 134.1 level. If the USD/JPY pair declines, it may find support near 132. If the pair climbs, it may find resistance at 135.1. 

The BOJ interest rate decision on Friday is expected to attract considerable market attention. The BOJ Monetary policy meeting will be the first one that newly-appointed Governor Kazuo Ueda will be called to preside over. Kazuo Ueda has replaced Haruhiko Kuroda, whose term in office ended on April 9th, becoming the BOJ's 32nd governor. Ueda will be faced with the challenge of normalizing Japan’s monetary policy after prolonged easing. 

In an interview on Tuesday, Ueda reiterated the importance of maintaining the Bank’s ultra-loose policy for now, to keep inflation from falling below the 2% target. Ueda however, hinted at a change in policy if inflation and wage growth overshoot expectations.

Japanese policymakers maintained ultra-low interest rates at the BOJ policy meeting in March, keeping the central bank’s refinancing rate at -0.10%. The BOJ is likely to keep a dovish stance at its meeting this week. The BOJ is expected to maintain its ultra-easy monetary policy, including its interest rate targets. However, recent reports indicate that Ueda may be gearing up for a change in policy later in the year. The BOJ is planning to conduct a review of the impact of its easing policies, with discussions starting at this week’s meeting. This might be the prelude to a shift in the BOJ’s monetary policy.

BOJ Core CPI rose to 2.9% in March on an annual basis from 2.7% in February. March’s print exceeded expectations of a 2.6% growth, indicating that price pressures in Japan continue to rise.

National Core CPI remained unchanged at 3.1% year-on-year in March. Tokyo Core CPI for March was hotter than expected, at 3.2% on an annual basis, against expectations of a 3.1% print. Inflation in Japan remains steadily above the BOJ’s 2% target, putting pressure on businesses and households. Increased price pressures and wages, raise concerns of a wage-price spiral and may force the BOJ to pivot towards a more hawkish policy. 

Final GDP data for Q4 of 2022 have shown that the Japanese economy has reached stagnation. Japan’s economic outlook is poor, raising recession concerns for the world’s third-biggest economy. The final GDP Price Index printed slightly higher than expected, with a 1.2% annual expansion, versus 1.1% predicted.

USDJPY 1hr chart


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Written by:
Myrsini Giannouli

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