Global central banks set for busy week, BOJ in focus as rate hike looms

This week promises a flurry of central bank meetings around the world, with all eyes on the Bank of Japan as it ponders ending its negative interest rate policy.

Global central banks set for busy week, BOJ in focus as rate hike looms
All Eyes On The BOJ This Week

The U.S. dollar held its ground on Monday morning as a whirlwind of central bank meetings gets underway this week. The spotlight shines brightest on the Bank of Japan (BOJ), which teeters on the edge of abandoning its negative interest rate policy, potentially as soon as tomorrow.

This week marks a marathon for global central banks, with policymakers from England, Australia, Norway, Switzerland, Mexico, Taiwan, Brazil and Indonesia all scheduled to huddle. Most are likely to leave interest rates unchanged. But all eyes are glued to the BOJ, where recent hefty wage increases by major Japanese corporations have solidified expectations of a policy shift.

Whispers of a policy change have been swirling since Kazuo Ueda ascended to the BOJ governorship in April last year. According to sources privy to the bank's thinking, internal preparations were largely completed by year-end 2023. This has fueled market speculation, sending the Japanese yen (USD/JPY) surging to a one-month high of 146.48 per dollar earlier this month. As of Monday morning, the yen hovered slightly weaker at around 149.25 per dollar by 07:15 GMT.

The BOJ might choose to postpone the move until its April meeting, but markets are currently betting on a 39% chance of the central bank raising rates from -0.1% to 0.0% on Tuesday.

Elsewhere, the Reserve Bank of Australia (RBA) also convenes on Tuesday, with most economists predicting it will hold rates steady. However, the focus will be on the RBA's pronouncements to discern any softening in its tightening stance. The Australian dollar (AUD/USD) displayed minimal movement, lingering near a more-than-week low at $0.6563.

The euro (EUR/USD) and the British pound (GBP/USD) mirrored this stability, trading at $1.0889 and $1.2736 respectively, in the lead-up to the Bank of England (BOE) meeting on Thursday. The BOE is widely expected to maintain interest rates.

The U.S. Federal Reserve is not expected to make any interest rate adjustments this week. However, hotter-than-expected inflation data from last week has caused investors to revise their expectations for future rate cuts.

The Fed projected 75 basis points of easing (three rate cuts) in 2024 back in December. Now, traders are pricing in only 72 basis points of cuts, with a 58% chance of the first cut occurring in June. The key focus will be on any revisions to the Fed's projections for rate cuts, also known as dot plots.

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