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The Bank of Japan meet on March 18 and 19. Every meeting for the past two years or so has been eagerly awaited for an exit out of ultra-easy policy. But, finally, the time seems to near. If not at this March meeting then April (25 and 26) is the expectation.

MUFG on what’s ahead:

• We continue to expect positive wage negotiation results this week to give the green light for the BoJ to begin to tighten policy next week.
  
• 
  To dampen the market impact from exiting negative rates and yield curve control, the BoJ will be keen to emphasize that it will be a gradual process of policy normalization unlike the aggressive rate hike cycles implemented by other major central banks in recent years.
  
• 
  If the BoJ delivers cautious forward guidance alongside hiking rates that casts doubt on the need for further hikes, it could result in the Yen weakening further in the near term by encouraging the use of Yen-funded carry trades.

—

Mitsubishi UFJ Financial Group is a Japanese financial services group that is the largest in the world measured by assets.

USD/JPY update, a wee bit higher on the session:

With inflation in focus, consumer spending trends also need consideration. Upward trends in consumer spending could fuel demand-driven inflation. A higher-for-longer Fed rate path may reduce disposable income, curb consumer spending, and dampen demand-driven inflation.

Economists forecast retail sales to increase by 0.8% in February after falling by 0.8% in January.

Other stats include weekly jobless claims. However, barring an unexpected spike in jobless claims, the focus will be on producer prices and retail sales.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on US data, wage negotiations in Japan, and the Bank of Japan. Weaker-than-expected US data and BoJ support for a pivot from negative rates could tilt monetary policy divergence toward the Yen. The wage report on Friday could be pivotal.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered below the 50-day EMA while remaining above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A breakout from the 50-day EMA and the 148.529 resistance level could give the bulls a run at the 151.685 resistance level. However, selling pressure could intensify at the 148.529 resistance level. The 50-day EMA is confluent with the resistance level.

BoJ reaction to wage negotiations and the US economic calendar need consideration.

Conversely, a USD/JPY drop below the 147.500 handle would bring the 145.891 support level and the 200-day EMA into play.

The 14-day RSI at 40.73 indicates a USD/JPY drop to the 145.891 support level before entering oversold territory.

Grayscale’s Bitcoin Trust (GBTC) is nearing a record outflow, according to recent data. 

With a significant $10.6 billion outflow, it is the second-largest in cumulative outflows among Exchange Traded Funds (ETFs) over the past 15 years. 

It is trailing only behind the iShares MSCI Emerging Markets ETF (EEM), which has seen an outflow of $12.3 billion.

Largest inflows and outflows 

Vanguard’s S&P 500 ETF (VOO) leads the inflow chart with $258.6 billion, followed closely by iShares Core S&P 500 ETF (IVV) and Vanguard Total Stock Market ETF (VTI), indicating a strong investor preference for traditional equity assets. 

On the other end of the spectrum, alongside GBTC, ETFs such as SPDR Gold Shares (GLD) and SPDR S&P MidCap 400 ETF Trust (MDY) are experiencing the largest outflows.

Gold ETFs are seeing net outflows as investments flow into bitcoin ETFs and exchange-traded products. With bitcoin’s recent price surge and the rising inflows into bitcoin-related funds, analysts suggest that the cryptocurrency could be on track to challenge gold’s long-held status as the primary safe-haven asset. Despite the current trend, gold ETFs still hold a significantly larger market capitalization compared to bitcoin’s combined ETP and ETF market cap 

Grayscale’s strategic response 

In a strategic move, Grayscale is launching a “mini-me” low-fee version of its GBTC product, labeled $BTC. 

Investors in the original GBTC will have the opportunity to move into the new fund without a tax hit through a special dividend, a move that market analysts had predicted and see as a “no-brainer.” 

The new fund is expected to have a lower fee, and its approval is pending by the Securities and Exchange Commission (SEC). 

This introduction of a lower-cost alternative mirrors the approach taken by other entities such as BlackRock with their mini-fund IEMG, and the Gold MiniShares Trust (GLDM). It aims to to provide more cost-effective investment options to clients.

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Finance Magnates CY Limited

Tech stocks brushed aside the uptrend in yields, leading the US equity markets into positive territory. On Tuesday, the Nasdaq Composite Index rallied 1.54%. The S&P 500 and the Dow gained 1.12% and 0.61%, respectively.

The US equity markets set the tone for the Wednesday session, with the ASX 200 and Nikkei opening in positive territory.

However, updates on wage negotiations from Japan pressured the Nikkei. Toyota Motor Corp. (7203), a leading indicator of wage negotiations, reportedly agreed to union demands for wage increases. On Wednesday, Toyota Motor Corp. gave factory workers the most marked increase in pay in 25 years.

News of rising mortgage defaults in China impacted Hang Seng-listed real estate stocks. Tech stocks gave up early gains. In contrast, the ASX 200 tracked the overnight gains from the US. Bank and retail stocks were among the front-runners.

US Equity Market Moves and the Bank of Japan in Focus

On Thursday, the US equity market session from Wednesday will set the tone for the session. There were no US economic indicators for investors to consider on Thursday.

10-year US Treasury yields gained 0.94%, ending the session at 4.192%. Caution ahead of US retail sales and producer price numbers, out on Thursday, impacted market risk sentiment mid-week.

On the technicals, ANZ note the recent high around $2,195 as resistance:

• a break of this resistance targets above $2,200

ANZ are wary of a correction first through, “a healthy price correction looks in the offing:”, citing:

• RSI suggests an overbought level

• If a correction starts, the price could fall back to the key support level of $2,100

Further ahead, and more leaning fundamental than technical.

Bullish factors include:

• “While speculators have increased their bullish bets recently, positions are not matching the intensity of the latest price rally,”
• “Moreover, disinvestment in gold-backed Exchange-Traded Funds (ETFs) has been continuing. A lean level of investment in gold should be seen as a potential driver. This not only limits scope for a heavy liquidation but also leaves ample room for fresh buying.”
• rising uncertainties on the economic outlook and geopolitics
• central banks continue to buy

ANZ cautions that higher prices could weigh on physical demand

The Federal Open Market Committee (FOMC) meet on March 19 and 20. Market expectations heading into the meeting are, at present, slightly above 50% for a June 25bp rate cut.

Analysts at Wolfe Research in the US are flagging a concern:

• “We think the risk leans a bit hawkish next week”
• “After two strong CPI prints, we’re not convinced the Fed will be ready to cut rates by the June meeting with only 2.5 additional CPI readings from here (May CPI comes out on the 2nd day of the June FOMC).”

• “This would be reflected in the Fed potentially moving its median 2024 dot to two cuts instead of three, although this is not yet our base case”

I can’t help but agree. After hot inflation reports for January and February we have all been bombarded with excuses reminiscent of the ‘transitory’ days, but this time from analysts, not from the Fed. Fed officials have been more cautious on inflation readings than the median economists.

The BOJ statement is on the 19th.

The FOMC will be on the 20th.

Buckle up!