BusinessTech excitement builds as world anticipates BOJ fireworks

Tech excitement builds as world anticipates BOJ fireworks

Anticipating BOJ Announcement: Tech Industry Poised for Positive Impact
© Reuters. FILE PHOTO: Pedestrians walk past the Bank of Japan building in Tokyo, Japan March 18, 2024. REUTERS/Kim Kyung-Hoon/File Photo

By Jamie McGeever

(Reuters) – Previewing the upcoming events in Asian markets.

The moment of truth is fast approaching. 

The Bank of Japan is gearing up to unveil its potentially groundbreaking policy decision on Tuesday amidst a backdrop of growing optimism among investors. A surge in positive sentiment towards the tech sector has helped counterbalance the impact of rising U.S. bond yields, propelling stock markets globally on Monday. 

Major tech companies and megacaps spearheaded the gains on Wall Street, with Alphabet (NASDAQ:) surging by 4.6% – marking its largest increase in four months – following reports that Apple (NASDAQ:) is considering incorporating Google’s Gemini AI engine into the iPhone. Moreover, Nvidia (NASDAQ:) also experienced a boost in anticipation of its annual developer conference.

With Asia Pacific markets already enjoying a strong start to the week with a 2.7% increase, coupled with China reporting positive economic data, global markets are positioned favorably ahead of the BOJ’s highly anticipated announcement.

Aside from the policy decision and Governor Kazuo Ueda’s press briefing on Tuesday, the economic calendar for Asia and the Pacific also includes the Reserve Bank of Australia’s latest policy decision. Consequently, the Australian dollar could see increased trading activity, along with the Japanese yen.

The Aussie/yen currency pair, typically reflective of investors’ appetite for carry trades and overall global risk sentiment, may be a focal point on Tuesday.

Besides the expected interest rate hike by the BOJ – the first in 17 years, marking an end to eight years of negative interest rates – speculations suggest the central bank may also signal a shift in its yield curve control and asset purchase policies, as reported by Nikkei newspaper on Monday.

If the BOJ does embark on a multi-pronged approach involving interest rates, yield curve control, and risk asset purchases, Japanese markets could witness significant volatility on Tuesday.

Regarding the yen’s performance, it will be heavily influenced by the variance between Japanese and U.S. bond yields. While hedge funds and speculators have scaled back their short yen positions, there remains a considerable position compared to historical norms.

There is a potential for short-covering, although prevailing dollar-supportive spreads may limit such activity. This is particularly relevant with the Federal Reserve set to announce its policy decision and economic forecasts on Wednesday.

Conversely, Australia’s central bank is expected to maintain its cash rate at 4.35% for a third consecutive meeting on Tuesday, extending to at least the end of September. Economists surveyed by Reuters anticipate at least two rate cuts in the final quarter of 2024.

Despite market expectations of rate cuts from major central banks, such as the Fed and the European Central Bank starting around June, the RBA stands out for not reflecting similar pricing for mid-year adjustments.

Key events to watch on Monday that could provide further market direction include:

– Decision on Japanese monetary policy

– Decision on Australian monetary policy

– Japan’s industrial production data for February

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