The Japanese yen is showing limited movement to start off the week. In the European session, USD/JPY is trading is almost unchanged at 149.07.

Will the BoJ raise rates on Tuesday?

The Bank of Japan will make its rate announcement on Tuesday and there is a strong possibility that the BoJ will lift interest rates out of negative territory. This would mark a sea-change in policy as the last rate hike occurred in 2007.

Japan is experiencing inflation after years of deflation, and speculation has been rising that the BoJ will pivot after years of an ultra-accommodative monetary policy. Governor Ueda has repeatedly stressed that the BoJ will not tighten until wage growth rises, as that would be evidence that inflation is sustainable.

The annual wage negotiations indicate a massive victory for workers, with wages set to rise as much as 5.2%. This could well be the signal that Ueda needs to hit the rate-hike trigger. The key question is whether the BoJ will raise rates on Tuesday or wait until April, which would provide the central bank with more data before making such a critical decision.

It’s a close call as to whether the BoJ will make the move on Tuesday or wait until April. Goldman Sachs is expecting that the BoJ will raise rates and also abolish its yield curve control policy which it uses to target interest rates levels.

If the BoJ raises rates, the yen will likely move higher. Even if the central bank stands pat, with expectations of a possible move at a fever pitch, we can expect volatility from the yen after the meeting.

Hold tight for what should be a busy Tuesday.

USD/JPY Technical

• USD/JPY put pressure on resistance at 149.47 earlier. Above, there is resistance at 149.88
• 148.75 and 148.34 are providing support

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