Bonda Asia: Expectations of Bank of Japan rate hike reignited, USD/JPY closes slightly lower

On March 24, according to a report by The Wall Street Journal, preliminary data released by Japan’s largest labor organization, Rengo, indicates that its 1,100 member organizations achieved an average salary increase of 5.26% this year, slightly higher than last year’s 5.25%. Major corporations such as Toyota, Honda, and Hitachi fully met the unions’ salary increase demands. This result has heightened market expectations for a rate hike by the Bank of Japan. The overnight index swap market shows that investors believe there is about a 60% chance the central bank will raise rates as early as April; S&P Global Market Intelligence economist Harumi Taguchi anticipates that the Bank of Japan will raise rates to 1% in July. However, the ongoing escalation of conflicts in the Middle East leading to soaring energy prices threatens corporate profit margins and may dampen consumer demand, putting the virtuous cycle of wages and inflation to the test.

Additionally, due to extended disruptions in transportation through the Strait of Hormuz and heightened structural concerns related to global supply concentration, Goldman Sachs has raised its oil price forecast for 2026 and is bullish on the oil and energy sectors. The firm has reinforced its expectation that inflationary pressures will persist longer, potentially supporting commodity-linked currencies while intensifying market worries about central bank policy direction. In its latest outlook, the firm currently assumes that oil transportation through this critical Middle Eastern chokepoint will operate at only 5% of normal levels for an extended period of up to six weeks. This represents a more severe and prolonged disruption scenario than previously anticipated. Goldman Sachs further expects that restoring transportation will require an additional month, indicating that supply recovery will be gradual rather than immediate.

Today’s data to watch includes the Eurozone March SPGI Manufacturing PMI preliminary value, the UK’s March SPGI Services PMI preliminary value, the UK’s March SPGI Manufacturing PMI preliminary value, and the US March SPGI Manufacturing PMI preliminary value.

Gold/USD

Gold prices fell sharply yesterday, briefly dropping below the 4100 mark and hitting a 17-week low, with the current exchange rate trading around 4350. In addition to the renewed expectations of interest rate cuts from the Federal Reserve putting continued pressure on gold, the hawkish signals released by several central banks recently have also consistently pressured gold prices. However, the US dollar index weakened, driven by Trump’s remarks that dampened safe-haven demand for the dollar, limiting the decline in gold. Today, focus on resistance around 4500, with support near 4200.

USD/JPY

The USD/JPY pair experienced fluctuations and declined yesterday, with a slight drop in the daily closing price, currently trading around 158.60. In addition to profit-taking exerting some pressure on the exchange rate, the weakening of the dollar index due to Trump’s comments affecting safe-haven demand for the dollar has also contributed significantly to the downward pressure on the exchange rate. Furthermore, concerns about the Bank of Japan’s potential intervention in the exchange rate and the renewed expectations for a rate hike by the Bank of Japan have also exerted some pressure on the exchange rate. Today, focus on resistance around 159.50, with support near 157.50.

USD/CAD

The USD/CAD pair rebounded from a low yesterday, with a slight increase in the daily closing price, currently trading around 1.3750. In addition to short covering providing some support for the exchange rate, the sharp drop in oil prices following Trump’s remarks suggesting a potential end to the conflict has been the main reason supporting the rebound in the exchange rate. However, the weakness of the dollar index has limited the rebound potential of the exchange rate. Today, focus on resistance around 1.3850, with support near 1.3650.

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Editor: Chen Ping