The Bank of Japan's policy stance emphasizes achieving a 2% inflation target supported by wage growth. BOJ Governor Kazuo Ueda stated at a press conference following a policy meeting in Tokyo that Japan's underlying inflation is gradually accelerating and steadily approaching the central bank's 2% target. However, he stressed that achieving this goal requires price increases to be matched by robust and sustainable wage growth.
This statement was made ahead of the conclusion of the BOJ's two-day monetary policy meeting. Market expectations widely anticipate that the central bank will keep its policy rate unchanged at 0.75% during this meeting, given the current economic environment and the incomplete stabilization of the inflation structure.
The BOJ faces an increasingly complex macroeconomic environment. Ongoing conflicts in the Middle East have led to significant rises in international oil prices, further exacerbating existing inflationary pressures. As the Japanese economy is highly dependent on energy imports, the pass-through of higher energy prices to domestic prices is more direct, requiring the central bank to be more cautious in timing any interest rate hikes to avoid impacting the economic recovery.
Governor Ueda noted that corporate pricing behavior is changing, with more companies beginning to pass rising raw material and labor costs through to final prices. This process is fostering a mild positive feedback loop between wages and prices. He further indicated that underlying inflation is expected to stabilize around 2% during the second half of fiscal 2026 through 2027, suggesting Japan may gradually escape its long-standing low-inflation or deflationary state.
The BOJ explicitly stated it will guide monetary policy appropriately to achieve a sustainable and stable inflation structure—specifically, 2% inflation supported by wage growth, rather than short-term price increases driven by imported costs like energy. This policy stance aligns with the view of Prime Minister Takaichi Sanae, who emphasized that inflation should stem from improvements in domestic economic fundamentals, particularly wage increases, rather than external shocks.
Notably, Governor Ueda did not reiterate the BOJ's previous clear forward guidance that it "will continue to raise interest rates as long as the economy continues to recover." This change is interpreted by markets as a shift towards a more cautious, even slightly dovish, policy stance.
Although core inflation has been above the BOJ's 2% target for nearly four consecutive years, the central bank believes that the "underlying inflation" driven by domestic demand and wage growth has not yet fully met the target, hence its restrained approach to raising rates.
Some market critics argue that the slow pace of BOJ rate hikes is a key reason for the persistent weakness of the yen, and that yen depreciation further increases import costs, thereby intensifying inflationary pressures. Regarding the foreign exchange market, Finance Minister Katsuya Satsuki stated that the government is prepared to use all available policy tools to address exchange rate volatility risks if necessary. At the time, the USD/JPY pair was approaching the key psychological level of 160.
Regarding its policy exit path, the BOJ is gradually scaling back its massive asset purchase program, particularly reducing its purchases of Japanese government bonds (JGBs), to achieve an orderly exit from long-term ultra-loose monetary policy. However, some opposition lawmakers have suggested expanding bond purchases to support government fiscal spending. The government has explicitly opposed this idea, emphasizing the need to avoid giving markets the impression of "monetizing fiscal debt," to maintain the independence of fiscal and monetary policy and market trust.
On interest rates and the bond market, Governor Ueda reiterated that the BOJ will respect the market's dominant role in determining long-term interest rates, which should reflect comprehensive market judgments on economic growth, inflation prospects, and fiscal and monetary policy paths. The BOJ will only intervene flexibly to stabilize the market if JGB yields experience abnormal volatility, such as sharp, rapid increases deviating from fundamentals.
In contrast, the United States has experienced a high inflation cycle since 2021, now lasting five years, becoming one of the most influential macroeconomic events in recent decades. This inflationary shock has profoundly altered the US economic structure and continues to impact monetary policy formulation, political debate, and financial market expectations.
In March 2021, multiple price indicators exceeded 2% year-on-year growth for the first time, a phenomenon initially viewed as a positive sign of economic recovery. The Federal Reserve hoped inflation would stabilize at the target level and believed the price increases were largely temporary, thus maintaining accommodative monetary policy to support economic growth.
However, inflation soon exceeded expectations and continued to accelerate. By the end of 2021, the Fed's preferred Personal Consumption Expenditures (PCE) Price Index had risen over 6% year-on-year, approximately three times its target. By mid-2022, this measure climbed above 7%, while the Consumer Price Index (CPI) increase exceeded 9%, reaching the highest level since 1981.
Facing rapidly失控 inflation, the Fed was forced to pivot to an aggressive tightening policy, implementing consecutive significant interest rate hikes starting in 2022 to curb demand and stabilize prices. The speed and magnitude of this policy shift were historically rare.
High inflation has significantly eroded households' real income. Over the past few years, price increases have almost entirely offset nominal income growth for US residents, with low-income groups particularly affected. The current real purchasing power of one US dollar is roughly equivalent to about 79 cents in early 2020, reflecting the persistent pressure of inflation on the cost of living.
Concurrently, rapidly rising interest rates have profoundly impacted the real estate market. During the pandemic, US consumers became accustomed to mortgage rates below 3%. As the Fed raised rates, mortgage rates quickly rose to 6% and above. This change significantly increased monthly mortgage payment burdens, pushing many potential homebuyers out of the market.
Current market expectations widely anticipate the Fed will keep rates unchanged at its upcoming policy meeting, but inflation remains about 1 percentage point above the 2% target, around 3%, indicating that monetary policy仍需 maintain a tightening bias.
Furthermore, new inflationary risks are accumulating. Middle East conflicts have pushed oil prices above $100 per barrel, with gasoline prices rising about 25% since before the conflict. Rising energy prices could transmit to broader goods and services prices through production and transportation costs, potentially triggering a new wave of inflationary pressures.
Regarding the US housing market, according to a Reuters survey of housing analysts, the US real estate market is expected to maintain low growth in the coming years against a backdrop of persistently high mortgage rates and a long-term shortage of housing supply.
Analysts forecast US house prices will rise about 1.8% in 2026 and about 2.5% in 2027. This growth rate is significantly lower than during the pandemic and below the long-term average performance of the housing market previously.
Since the pandemic began, US house prices have cumulatively increased over 50%, but price growth has noticeably slowed as rates rose and demand weakened. Latest data shows prices rose only about 1.4% over the past year, one of the lowest growth rates in 14 years.
The core issue in the housing market is constraints on both supply and demand. On one hand, high mortgage rates significantly weaken homebuyers' purchasing power and willingness to buy. On the other hand, many existing homeowners, having locked in very low long-term mortgage rates during the pandemic, are reluctant to sell their properties to avoid assuming higher financing costs, leading to limited market supply.
The current 30-year mortgage rate is approximately 6.2%, and the market expects this rate to remain around 6% until around 2028. If Middle East conflicts persist and further push up inflation and Treasury yields, this rate could even rise to 7% in the short term.
The housing market is also constrained by other multiple factors. A weakening labor market will dampen homebuying demand, while trade policies (such as increased tariffs) raise construction material costs, thereby increasing the cost of new housing. Additionally, the US still faces a housing supply gap of approximately 2.5 million units, and bridging this gap may take over five years.
Overall, under the combined effect of high interest rates, insufficient supply, and weak demand, the US housing market is unlikely to become a major driver of economic growth in the short term.
Globally, the US dollar, after reaching a 10-month high due to safe-haven demand, has recently seen consecutive declines, reflecting investors adjusting positions ahead of key central bank decisions. Current market expectations for Fed rate cuts within the year have significantly收敛, pricing in only about 25 basis points of cuts, while expectations for the European Central Bank have shifted from cuts to potential hikes, indicating rising uncertainty in global monetary policy paths.
In energy markets, affected by the Middle East situation, shipping through the Strait of Hormuz is obstructed, keeping international oil prices persistently high, which continues to disturb global inflation and economic prospects. Against this backdrop, USD/JPY remains near the sensitive level of 161, with the Japanese government repeatedly signaling potential intervention. The interaction between exchange rate movements and monetary policy expectations is becoming increasingly pronounced.
Overall, the differences in inflation structure and policy responses between Japan and the US are widening. Japan continues to seek "virtuous inflation" through wage growth and is cautiously normalizing policy, while the US maintains a tightening stance after experiencing high inflation shocks and faces new external inflationary risks. Against the backdrop of persistent global energy shocks and geopolitical uncertainty, the policy paths and market performances of major economies will continue to be deeply influenced by the trade-off between inflation and growth.
During Tuesday's trading session, market sentiment turned cautious ahead of the Fed's interest rate decision, resulting in stable fluctuations for USD/JPY. The pair tested a high of 159.49 and a low of 158.72 during the day.
Technical indicators show that the upper Bollinger Band edge on the 4-hour chart, around 159.70, provides dynamic short-term resistance. The middle Bollinger Band line, around 159.25, delineates potential strength/weakness divergence. The lower Bollinger Band edge, around 158.85, provides dynamic short-term support. The current price trend is testing the lower band region, indicating relative dominance by bearish momentum. The contracting Bollinger Band width suggests decreased short-term volatility. Meanwhile, the 14-day RSI on the 4-hour chart is near 49.00, in neutral territory, indicating a relative balance between bullish and bearish forces, suggesting the pair may enter a consolidation phase.
From a 4-hour perspective, short-term resistance for USD/JPY is established around the 159.75 level. If the pair breaks above this level during the day, it could challenge the 160.25 area. On the downside, short-term support is around the 158.50 level. If the pair falls below this support during the day, it risks declining further to test the 158.10 area.
Overall, current short-term market sentiment leans "cautious." If the pair can break above the 159.75 level during the day, it could strengthen short-term bullish sentiment, providing confidence for a challenge of the 160.25 area. However, if it falls below the 158.50 support, it would激发 short-term bearish sentiment, increasing the risk of a decline towards the 158.10 level.
Short-term USD/JPY path reference: Upside: 159.75 - 160.25 Downside: 158.50 - 158.10
Short-term USD/JPY trading suggestion: Wait for a 4-hour closing signal within the 159.75-158.50 price range and employ a breakout trading strategy.
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