- NZD/JPY extends gains as RBNZ holds its OCR at 5.5% to tame inflation.
- RBNZ committee expects higher rates will bring inflation back within the target range.
- BoJ’s Ueda stated not altering monetary policy solely to address FX fluctuations.
NZD/JPY continues its winning streak for the third successive session on Wednesday. The pair moves higher to near 92.20 after the hawkish hold by the Reserve Bank of New Zealand (RBNZ). As anticipated, the central bank has decided to maintain its Official Cash Rate (OCR) at 5.5% for the sixth consecutive meeting.
The Reserve Bank of New Zealand's committee expresses confidence that sustaining the OCR at a restrictive level for an extended period will bring consumer price inflation back within the target range of 1 to 3 percent by 2024. Despite headline inflation slowing to a two-and-a-half-year low of 4.7% in the fourth quarter of 2023, it remains significantly above the target level.
However, some economists perceive this decision as dovish, particularly considering New Zealand's entry into a recession and the sharp decline in consumer confidence. Market sentiment suggests the possibility of the RBNZ's first rate cut occurring in August.
On the other side, the strong US inflation data combined with weak Japanese economic indicators could raise the likelihood of Japanese authorities needing to intervene in the foreign exchange (FX) market. However, Bank of Japan (BoJ) Governor Kazuo Ueda stated that the central bank would not alter monetary policy solely to address FX fluctuations.
Governor Ueda also highlighted that Japan's persistent deflation and low inflation levels have made it challenging to influence public inflation expectations through monetary base expansion. With trend inflation still below 2%, it is essential to support the economy's trajectory towards achieving the 2% target by maintaining accommodative monetary conditions.
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