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The Bank of Japan (BoJ) interest rate decision and preliminary GDP data coming from the US and the Eurozone will be the key releases for the rest of the week.

The Australian dollar hit a six-week low after the Q1 2023 RBA trimmed mean CPI missed expectations, coming in at 6.6% on a year-to-year basis.

Commenting on de-dollarization talks, analysts at Goldman Sachs suggested in a report that “we see no evidence of that in the data so far (for example, even Brazil's rising share of CNY reserves replaced CAD, not the Dollar), and our strong view is that there is currently no real contender."
 

BoJ Interest Rate Decision

The BoJ’s governing board will convene on Friday to decide on interest rates. Economists expect the BoJ to keep borrowing costs on hold. This will be the first board meeting since Kazuo Ueda was appointed the new BoJ Governor.

Analysts at UOB Group do not expect the BoJ to change its monetary policy, at least in this meeting. “We expect Ueda to carry out the unwinding in two broad steps: 1) A protracted period (Apr to Dec 2023) of forward guidance to prepare the market for an orderly exit of BOJ’s ultra-easy monetary policy which may also involve a widening of the trading range of the 10-year JGB yield (to +/- 100bps). 2) We expect monetary policy normalization to begin only in early 2024 - YCC to be dropped and negative policy call rate to rise from -0.1% to 0% in Jan 2024 MPM,” they noted in a report.

ING’s analysts, commenting on the BoJ’s upcoming meeting, said: “Policy rate hikes are unlikely this year, but adjustments to the Yield Curve Control are possible as early as June. One option would see the BoJ target 5-year government bond yields (JGBs) instead of the current policy, which caps 10-year yields at 0.5%.”
 

Tokyo CPI April Report

The Japanese Statistics Bureau is expected to release the Tokyo CPI inflation data for April. Economists expect headline inflation to come in at 2.6% on an annualized basis, lower than the 3.3% figure recorded in March.

The BoJ’s Governor Kazuo Ueda told Japanese MPs that it would be appropriate to maintain the Yield Curve Control (YCC) and ease monetary policy given current economic, price, and financial developments. He added that if wages and inflation rise more than expected, Japan’s central bank could tighten monetary policy by increasing interest rates.
 

US & Eurozone GDP Q1 2023 preliminary data

This week’s reports include preliminary Q1 2023 GDP data releases coming from the US and the Eurozone. On Thursday, the US Bureau of Economic Analysis (BEA) will report a preliminary GDP report that is forecast to show a growth rate of 2% on a quarterly basis, down from the 2.6% figure recorded in the fourth quarter of the previous year.

Eurostat’s report is expected to show a 0.2% GDP growth rate on a quarter-to-quarter basis and 1.4% on an annualized basis. A report prepared by Rabobank’s economists noted that “we believe that the consensus is too pessimistic, and we now expect a relatively strong growth figure for the first quarter. However, we do not expect this strong growth to be sustained throughout the year, as the credit impulse has waned, and the global growth landscape is likely to become a drag.”

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