Dollar steady, yen wavers as BOJ policy shift beckons

By Ankur Banerjee

SINGAPORE (Reuters) -The dollar was steady on Monday as traders looked ahead to a week dominated by central bank meetings worldwide, with the Bank of Japan seemingly on the brink of ending negative rates and the focus on how many rate cuts the Federal Reserve projects.

Apart from Japan and the United States, central banks in England, Australia, Norway, Switzerland, Mexico, Taiwan, Brazil and Indonesia are all due to meet, with most expected to stand pat on rates.

The spotlight in Asia is firmly on the BOJ as the bigger-than-expected pay hikes by major Japanese firms cemented expectations that the central bank is set to herald a new era by ending its negative interest rate policy, potentially as soon as Tuesday.

Internal preparations for an exit have been in the works since Kazuo Ueda took office as BOJ governor in April last year, and were mostly done by year-end, sources familiar with the bank’s thinking told Reuters.

On Monday, the Japanese yen was a tad soft at 149.13 per dollar, having hit its lowest in more than a week of 149.33 earlier in the session. The Asian currency has had a whirlwind past few weeks, weakening to 150.88 last month and leading to worries over intervention by Japanese authorities.

But rising speculation that Japan’s central bank may be getting ready to shift away from its ultra easy monetary policy boosted the yen, taking it to a one-month high of 146.48 per dollar at the start of the month.

Latest weekly data from the U.S. markets regulator shows speculators hold a net short yen position worth $8.66 billion, down from $11 billion they held at the start of the month.

There is still a possibility that the BOJ may choose to wait till its April meeting to make the move, with markets pricing in 39% chance of the central bank taking the policy rate to 0.0% from -0.1% on Tuesday.

“But even if the BOJ moves this week to end negative interest rates, we think officials will remain dovish and not project a series of further rate hikes in 2024 that would hurt Japan’s risk assets,” said Mansoor Mohi-uddin, chief economist at the Bank of Singapore.

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Beyond Japan, Australia’s central bank is also due to meet on Tuesday and is widely expected to hold rates steady, with economists polled by Reuters expecting at least two rate cuts in the final quarter of 2024.

Investor attention will be on the policy statement and comments to assess whether the Reserve Bank of Australia chooses to further dilute its tightening bias.

The Australian dollar was little changed at $0.6563, hovering close to more than a week low. The New Zealand dollar was 0.14% higher at $0.60925. [AUD/]

The euro last bought $1.0886, while the sterling was at $1.27325 ahead of the Bank of England meeting on Thursday when the central bank is expected to stand pat.

The dollar index, which measures the U.S. currency against six rivals, was at 103.47, having risen to 103.50 earlier in the session, its highest since March 6 ahead of the Fed’s meeting this week.

While the U.S. central bank is not expected to make any interest rate moves, hotter-than-expected U.S. producer and consumer price data last week has led traders to rein in bets on future cuts.

Traders are now pricing in 72 basis points of cuts this year, with 58% chance of the first rate cut coming in June, according to CME FedWatch tool.

The focus has shifted to whether the policymakers will make any changes to their projections of rate cuts, or dot plots for this year. The Fed in December projected 75 basis points, or three rate cuts, of easing in 2024.

“We think the risks are skewed to the Fed’s median ‘dot plot’ forecast showing less easing than in December which would likely be dollar positive,” said Hamish Pepper, fixed income and currency strategist at Harbour Asset Management.

(Reporting by Ankur Banerjee in SingaporeEditing by Shri Navaratnam and Lincoln Feast.)