BoJ hiking could help the Japanese Yen (JPY) somewhat, but for a much stronger JPY the Fed needs to cut rates markedly, economists at Nordea say.

BoJ is at the onset of raising rates after high wage growth

While the USD sets the tone for most currencies, the JPY could finally be in for some slight relief now that the BoJ is at the beginning of its hiking cycle. 

We believe that the BoJ will signal next Tuesday that rates will likely be raised at the April meeting after the announcement for wage growth above 5% for the largest workers union. With wage growth the highest in three decades and inflation above 2%, the negative interest rate era in Japa is about to end. However, we don’t expect a massive rate hiking cycle from the BoJ. 

The BoJ will take baby steps when hiking rates to ensure that the inflation dynamic is around 2%. As such, no major JPY strengthening will come so long as the Fed and ECB keep rates unchanged.