Gold hits record high near $3,900/z as US government shutdown begins
- BoJ kept rates unchanged and plans very gradual ETF and REIT reductions.
- US labor data on Friday could influence Fed policy.
- USD/JPY is consolidating between 145 support and 151 resistance.
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After the Fed and the Bank of England announced their monetary policy decisions earlier this month, attention shifted to the Bank of Japan. As expected, the BOJ kept interest rates unchanged, but there were some surprises in its other decisions.
The biggest was the plan to reduce its holdings in ETFs and REITs very gradually—over 100 years—to avoid sudden market shocks. The USD/JPY remains uncertain, especially against the US dollar, where the pair is still consolidating.
Meanwhile, all eyes will be on US labor market data, set to be released on the first Friday of October. The data could affect the Fed’s October decision.
Governor Ueda Tones Down Market Sentiment
Although the BOJ kept interest rates unchanged, two members, Hajime Takata and Naoki Tamura, voted for a 25bp hike. Combined with the somewhat hawkish tone in Asahi Noguchi’s statement, this sets the stage for a possible rate increase at the next meeting in October. However, the yen’s gains were limited, partly due to BOJ Governor Ueda highlighting several economic risks, which balanced the hawkish signals.
On the political front, the Japanese yen’s outlook could also be influenced by the upcoming election for the chairman of the ruling LDP party. The previous front-runner, Sanae Takaichi, who favors looser monetary policy, is now trailing behind the more conservative Shinjiro Koizumi. If Koizumi wins, it could support further strengthening of the yen.
As a compromise on the BOJ’s large balance sheet, Japan’s monetary authorities announced plans to reduce ETF and REIT holdings by about 335 billion yen per year, meaning the full reduction would take roughly 100 years.
Labor Market Remains Fed’s Priority
The market currently expects two more 25bp rate cuts from the Fed this year, assuming the US economy avoids a sharp downturn. In this context, labor market data—including revisions to previous months—will be closely watched, as it is a key factor in the Fed’s monetary policy decisions. If the data shows a continued slowdown in the labor market, the Fed could consider larger easing, possibly at the next meeting. The market’s expectations for Friday’s labor data are as follows:
USD/JPY Upward Pattern Holds Momentum
The USD/JPY pair is still consolidating within a broad upward triangle, keeping the potential for further gains intact. The key level to watch is 151 yen per US dollar—breaking above this resistance could allow the pair to move higher.
The upward scenario would be invalidated if USD/JPY falls below 145 yen per US dollar, which could happen if the Bank of Japan delivers hawkish signals in the coming days or weeks.
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