The negative rates era is officially over. The Bank of Japan last night voted 7-2 to end the world's final negative interest rate regime and move the policy rate to 0-0.1%. This move was well telegraphed by the BOJ. USDJPY rose to back above 150 following the announcement despite the hike thanks to the statement which said the central bank expected accommodative conditions to persist for some time and hinted that concurrent rate rises are unlikely. The BOJ offered little guidance as to what comes next, insisting they will remain data dependent for decision making and that there is still some distance from the persistent 2% inflation rate Japan is targeting. At the meeting the BOJ also ended its program of ETF buying.
As we move closer to the Fed on Wednesday the market is adjusting its rate cut expectations. There are now fewer than three cuts priced in for 2024. Expectations reached 67bps yesterday before rising again slightly to 70bps. Attention will be on the dot plot on Wednesday to show whether the Fed have adjusted their own expectations in the face of robust US data.
The Reserve Bank of Australia held rates at 4.35%, a 12 year high, overnight. The Reserve Bank also removed any reference to possible further hikes from the official language, signaling they are done with this hiking cycle. Governor Michele Bullock confirmed they believe they are on track to get inflation back at target within their forecast. AUD fell 0.7% and aussie equities rose on the news.
Oil is holding the recent gains following a rally that kicked off in early Feb, WTI remains above $82.
Today we have Canadian CPI, US housing starts, German ZEW survey of market analysts and ECB VP Luis de Guindos is speaking.
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