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Is lifting negative interest rates a ‘Done Deal’?

The dollar is falling against the yen as the Bank of Japan is likely to lift negative interest rates at its policy meeting on Tuesday, but daily leaked reports have left the market feeling a bit fed up.

Various leaked reports have been circulating regarding this policy change, but a recent Jiji Press report revealed that the decision to lift negative interest rates has already been ‘made’.
The US dollar has been steady in recent days, partly due to better-than-expected US CPI and PPI. The FOMC will also have a week to watch as Chairman Powell said that a US interest rate cut is not so “far off”.

In the US, monetary easing is also a long way off. Many thought next week’s focus would be on the BoJ policy meeting, but it is actually the FOMC’s dot plot. If there are three or fewer rate cuts over the year, the US dollar will be strong.

With US stocks falling and the dollar falling, the Nikkei has fallen sharply, but the market has rallied sharply in the short term, so it is likely to drop back down quickly. The failure to maintain new highs is a bad technical signal.

The market is unlikely to reverse unless the dollar/yen, Nikkei and US stocks clearly bottom out. As a risk, it may be better to take into account the possibility of the yen going unexpectedly strong.