Key facts
- Bank of Japan Governor Kazuo Ueda signaled a shift towards inflation fighting.
- Ueda indicated the BOJ is ready to act against inflation risks.
- Market expectations favor a rate hike at the June 15-16 BOJ meeting.
- The yen strengthened away from the 160 level against the dollar.
- Germany, France, and the UK will release construction PMI data.
- France will conduct government debt auctions.
Bank of Japan Governor Kazuo Ueda has signaled a significant shift in monetary policy, moving towards inflation fighting and clearing the path for potential rate hikes. In a recent speech, Ueda emphasized the bank's readiness to act against rising inflation that could negatively impact the economy, even if such inflation stems from supply shocks like the ongoing conflict in the Middle East. This marks a departure from previous ambiguity, suggesting the BOJ will no longer disregard price pressures driven by external factors if they risk broader economic consequences.
Market participants widely anticipate a rate hike at the upcoming June 15-16 meeting, with Ueda's language reinforcing these expectations. He cautioned that rising raw material costs are already affecting wholesale prices and could soon spread to broader consumer prices. Despite this hawkish turn, the Japanese yen has continued to weaken against the dollar, trading near a level that could prompt government intervention. Analysts suggest that even a June rate increase might not be sufficient to significantly strengthen the yen without a more sustained tightening signal from the BOJ.
Markets are currently in a risk-off mode, influenced by renewed hostilities in the Middle East and stalled talks between Tehran and Washington. Brent crude futures saw a slight decrease after Lebanon and Israel agreed to implement a ceasefire, contingent on Hezbollah's compliance. Concurrently, the U.S. House of Representatives approved a symbolic war powers resolution to block President Donald Trump from continuing the conflict against Iran, though it faces a likely veto. S&P 500 e-mini futures, MSCI's Asia-Pacific index, and European futures are all trading lower. The yen, however, strengthened away from the 160 level against the dollar, a mark considered an unofficial intervention zone.