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A look at the day ahead in Asian and global markets

By Jamie McGeever, Columnist, Global Finance & Markets

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The waiting is almost over. 

The Bank of Japan delivers its potentially historic policy decision on Tuesday against a backdrop of positive investor sentiment after a wave of bullish tech sentiment offset higher U.S. bond yields, and lifted stocks around the world on Monday. 

Tech and megacaps drove Wall Street higher, led by Alphabet’s 4.6% rise – its biggest in four months – on a media report that Apple is in talks to build Google’s Gemini AI engine into the iPhone, while Nvidia rose too ahead of its annual developer conference.

Pedestrians walk past the Bank of Japan building in Tokyo, Japan March 18, 2024. REUTERS/Kim Kyung-Hoon

With Japan’s Nikkei already kicking off the week with a 2.7% gain of its own and China delivering a broadly positive batch of economic data on Monday, markets around the world are on a solid footing ahead of the BOJ bonanza.

Apart from the decision and Governor Kazuo Ueda‘s press conference on Tuesday, the Asia and Pacific calendar also includes the Reserve Bank of Australia‘s latest policy decision, so the Aussie dollar could be one of the most heavily traded currencies along with the yen.

Indeed, the Aussie/yen cross, often a good measure of investors’ thirst for carry trades and global risk appetite in general, could be the currency pair to watch on Tuesday.

Graphics are produced by Reuters.

Not only is the BOJ expected to raise rates for the first time in 17 years, ending eight years of negative interest rate policy, it may also call time on its yield curve control and purchase of risk assets, Nikkei newspaper reported on Monday.

If the BOJ does make a triple-pronged moves on rates, YCC and purchases of risky assets, Japanese markets could be in for a wild rise on Tuesday.

Graphics are produced by Reuters.

As far as the yen is concerned, much will depend on the spread between Japanese and U.S. yields. Hedge funds and speculators have trimmed their short yen position, but it remains substantial by historical standards.

There’s a lot of scope for short-covering, but there may be little appetite for that against a backdrop of dollar-supportive spreads. Especially with the Federal Reserve announcing its latest policy decision and economic projections on Wednesday.

Australia’s central bank, meanwhile, is widely expected to hold its cash rate at 4.35% for a third straight meeting on Tuesday and at least until end-September, according to a Reuters poll of economists who see at least two rate cuts in the final quarter of 2024.

While financial markets have priced in rate cuts for some major central banks such as the Fed and European Central Bank starting around June, the RBA is a notable outlier with no such mid-year pricing.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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