- The lack of forward guidance for further tightening disappointed hawkish Bank of Japan traders and continues to weigh heavily on the Japanese Yen, dragging it to the lowest level since November 2023 on Wednesday.
- The BoJ, in a historic move on Tuesday, decided to end its negative interest rate policy and announced its first rate increase since 2007, though pledged to keep monetary conditions accommodative for the time being.
- The BoJ indicated that it will reduce purchases of commercial paper and corporate bonds, though will continue to purchase Japanese government bonds, and step in when necessary, if yields run too high and too fast.
- The robust US consumer and consumer inflation figures fuelled speculations that the Federal Reserve could modify its forward guidance to two 25 basis points rate cuts in 2024 instead of the three projected previously.
- Hence, the focus will remain glued to the outcome of the highly-anticipated two-day FOMC meeting and the updated economic projections, including the so-called "dot plot" for fresh cues about the future rate-cut path.
- In the meantime, hawkish Fed expectations remain supportive of elevated US Treasury bond yields and favour the USD bulls, though intervention fears could limit losses for the JPY and cap the upside for the currency pair.
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