Market News

By Matthew Burgess and Winnie Hsu

(Bloomberg) -- The yen is at risk of further losses as the Bank of Japan may be reluctant to sound too hawkish at its policy meeting after seeing the selloff in US stocks following the Fed, analysts say.

The slump in US equities Wednesday backs the argument for the BOJ to postpone further tightening due to potential market instability, according to Mizuho Securities. At the same time, a prolonged delay in hiking from the central bank may send the yen back toward 160 per dollar, IG Markets says.

Here is a selection of comments from analysts:

Invesco Asset Management Japan (Tomo Kinoshita, a global market strategist in Tokyo)

The yen will probably follow the euro’s losses and slide past 155 per dollar if the BOJ refrains from raising rates Thursday after the Fed decision. The negative market reaction to the Fed cut will make it “even more difficult for the BOJ to raise its policy rate.”

The yen’s initial weakening after the Fed has been less than the euro and other developed-market currencies.

IG Markets (Tony Sycamore, an analyst in Sydney) 

“If the BOJ does skip the opportunity to raise rates this month, and with the January BOJ meeting clouded under the US presidential inauguration, it means the BOJ is unlikely to raise rates until their meeting in March. This would be a dire outcome for the JPY, with the potential to send it cascading back to 160” per dollar.

Mizuho Securities (Masafumi Yamamoto and Masayoshi Mihara, strategists in Tokyo) 

The risk of a fall in Japanese stocks after the drop in US shares strengthens the argument for postponing the BOJ’s rate hike decision today on the grounds of “financial market instability.”

If the BOJ doesn’t raise rates today or hint for a hike in January, the dollar-yen could test the Nov. 15 high of 156.75.

Capital.Com (Kyle Rodda, a senior market analyst in Melbourne)

“The markets won’t be able to catch their breath any time soon however, with the Bank of Japan meeting today. There’s a sliver of a hike baked into the swaps curve but the implied probabilities suggest a hold from the BOJ.”

Risks to inflation and financial stability from a falling yen may force the BOJ to be more hawkish than it would otherwise like to be.

BNY (Bob Savage, head of markets strategy and insights in New York)

“USD/JPY at 155 is important just as 4.50% in 10-year US bonds is as a psychological level. I think the BOJ meeting could see further yen weakness if they are seen as not responsive to the FX weakness risks.”

“The best currencies for holding should be Chinese yuan and Malaysian ringgit that are seeing some short covering, while Indonesian rupiah, Indian rupee, Singapore dollar and Korean won are still vulnerable to broader US dollar gains.”

--With assistance from Georgina McKay and Mia Glass.