According to economists at Nordea, while the Japanese Yen (JPY) might see some relief with the Bank of Japan (BoJ) beginning its hiking cycle, significant strengthening depends on rate cuts by the Federal Reserve (Fed) and the European Central Bank (ECB).

The BoJ is likely to signal in its upcoming announcement next Tuesday that rates could be raised at the April meeting, following reports of wage growth above 5% for the largest workers’ union. This wage growth, the highest in three decades, along with inflation above 2%, suggests an end to Japan’s era of negative interest rates. However, Nordea anticipates a small rate hike cycle from the BoJ.

Instead, the BoJ is expected to proceed cautiously with rate hikes to ensure that inflation stays around 2%. Therefore, significant strengthening of the JPY is unlikely as long as the Fed and ECB maintain unchanged rates.

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