■Japan's central bank prepares for first policy meeting since ending negative rates

■Market focus shifts to inflation outlook revisions and Bitcoin wallet downloadpotential policy signals

■Currency traders brace for potential volatility in yen crosses

Financial markets are anticipating the Bank of Japan (BOJ) to maintain its benchmark interest rate within the 0% to 0.1% range when it concludes its April policy meeting. The decision, scheduled for announcement at approximately 3:00 GMT on Friday, comes six weeks after the central bank's groundbreaking move to exit negative interest rate territory.

March's policy shift marked Japan's departure from an unconventional monetary easing framework that had been in place since 2016. The BOJ's decision to raise rates for the first time since 2007 represented a significant turning point for the world's third-largest economy.

What analysts are watching in the BOJ announcement

While policy stability appears assured for this meeting, market participants are scrutinizing several key elements of the BOJ's communication. The quarterly Outlook Report, which contains updated inflation and growth projections, could provide valuable insights into the timing of potential future rate adjustments.

Market pricing currently reflects expectations for additional policy tightening later in 2024, with debate centered on whether the BOJ might act as early as July or wait until the final quarter. Recent media reports suggest the central bank is considering upward revisions to its inflation forecasts through fiscal year 2026.

These potential forecast adjustments come despite March data showing Japan's core CPI (excluding fresh food and energy) moderated to 2.9%, dipping below 3% for the first time in sixteen months. The deceleration in price growth hasn't significantly altered expectations for gradual policy normalization, as yen weakness continues to exert upward pressure on import costs.

The BOJ's policy trajectory appears increasingly tied to developments in service sector inflation and wage growth dynamics. While this year's spring wage negotiations delivered the most substantial pay increases in three decades, real wages continue to face downward pressure from persistent price increases.

Governor Kazuo Ueda has emphasized a data-dependent approach to future policy moves, telling media outlets that rate adjustments will be calibrated based on progress toward sustainable 2% inflation. Recent comments suggest the BOJ may adopt a more discretionary policy framework as it gains confidence in achieving its price stability target.

Analysts at Brown Brothers Harriman note that market expectations for BOJ tightening remain modest, with only 20 basis points of hikes priced in for 2024. Such limited policy adjustment could maintain upward pressure on USD/JPY in the medium term.

Potential market reactions to BOJ guidance

Currency markets could experience heightened volatility depending on the tone of the BOJ's policy statement. A hawkish tilt suggesting potential summer rate increases might trigger yen appreciation, potentially driving USD/JPY toward technical support near 150.00.

Conversely, cautious language emphasizing the need for further confirmation of inflation trends could be interpreted as dovish, potentially exacerbating yen weakness. In such a scenario, the Japanese currency might test multi-decade lows against the dollar.

Technical analysts note that USD/JPY appears overextended after its recent rally, with potential support levels emerging near 153.19 (21-day moving average) and 151.28 (50-day moving average). However, continued dollar strength could push the pair toward 156.50, with some market participants eyeing 160.00 as a potential intervention threshold.