Bank of Japan remains silent, Federal Reserve resolution may become key tonight

Asian Market Review

On Tuesday, the US dollar index continued to be sluggish, hitting another five-month low, and finally closed down 0.288% to 103.4. As of now, the US dollar is quoting 103.39.

Summary of the fundamentals of the foreign exchange market

Fitch: Lower the U.S. economic growth forecast for 2025 from 2.1% to 1.7%. The tariff shock is expected to increase US short-term inflation by 1 percentage point. It is expected that the Federal Reserve will postpone further interest rate cuts until the fourth quarter of 2025.

The US Treasury Secretary: There is no reason to think that there will be an economic recession. Trump demands reflection on sanctions policies that threaten the dollar's status.

Canada's CPI broke through the 2% mark for the first time in seven months, and unexpectedly jumped to 2.6%. After the data was released, the Canadian swap market expects the probability of the Bank of Canada's interest rate cut in April to be 30%, aihuaforex.compared with 43% before the data was released.

The German federal parliamentarian approves the Defense and Infrastructure Expenditure Act and establishes an infrastructure fund of 500 billion.

Fitch: Lower U.S. economic growth forecast for 2025 from 2.1% to 1.7%. The tariff shock is expected to increase US short-term inflation by 1 percentage point, and the Federal Reserve is expected to postpone further interest rate cuts until the fourth quarter of 2025.

BeautyTreasury Secretary: There is no reason to think there will be an economic recession. Trump demands reflection on sanctions policies that threaten the dollar's status.

Canada's CPI broke through the 2% mark for the first time in seven months, and unexpectedly jumped to 2.6%. After the data was released, the Canadian swap market expects the probability of the Bank of Canada's interest rate cut in April to be 30%, aihuaforex.compared with 43% before the data was released.

The German federal parliamentarian approves the Defense and Infrastructure Expenditure Act and establishes an infrastructure fund of 500 billion.

The Israeli army launched a large-scale air strike on the Gaza Strip, killing more than 400 people. The action is reported to the United States in advance.

Just guard: No ground offensive is being considered for the time being.

House forces: Will expand their attack targets in Israel.

Source: Essam Dalis, considered the leader of the Gaza Strip government, died in an Israeli air strike that day.

Putin agreed that Russia and Ukraine would not attack each other for 30 days, and had immediately issued relevant instructions to the Russian army.

Zelensky supported the proposal of not attacking energy facilities for 30 days and opposed the relevant proposals of Russia.

Russia proposed: effective supervision of the entire ceasefire, forced mobilization in Ukraine must be stopped, foreign military aid and intelligence support must be aihuaforex.completely stopped to Ukraine.

White House: Russia and the United States agreed to conduct technical negotiations on the implementation of a maritime ceasefire in the Black Sea, a aihuaforex.comprehensive ceasefire and permanent peace, and the negotiations will be launched in the Middle East immediately.

Summary of institutional views

Capital Macro: The Bank of Japan may still raise interest rates further

Capital Macro Asia Pacific head Marcel Thieliant said that the Bank of Japan has kept interest rates unchanged today, as the market generally expects, but the bank may still further raise policy interest rates. Capita Macro said there is a high possibility that the Bank of Japan will raise interest rates at its meeting from April 30 to May 1. "Inflation is well above the Bank of Japan's 2% target and will exceed the forecasts of aihuaforex.committee members starting in January," Thieliant said. He added: "In addition, the salary increase caused by this spring wage negotiations is even greater than last year, which should put additional upward pressure on inflation in the aihuaforex.coming months." Capita Macro expects that by 2027, the Bank of Japan will raise its policy interest rate to 1.5%.

Bank of America: The Fed is expected to keep interest rates stable as uncertainty heats up

The Fed is expected to maintain its current policy stance at the FOMC meeting in March. Bank of America Securities analysts expect that the Fed will adopt a cautious and prudent policy amid rising economic uncertainty. The Fed may prioritize “patience over panic”, while keeping interest rates stable, assessing the balance between slowing economic growth and sustained inflationary pressures. Bank of America analysts expect the Fed's latest economic forecast will reflect the factors of stagflation, growth forecasts will weaken, and inflation expectations will adjust upward. While the market has speculated about the timing of a possible rate cut, policy makers may reiterateThe data-driven approach emphasizes that the economic outlook needs to be further clarified before any policy changes are made. Investors will closely follow the speech of Fed Chairman Powell to understand how the Fed views changing risks, including supply disruptions, labor market resilience and geopolitical uncertainty.

TSLombard: The new government's shock therapy may amplify to unexpected results, highlighting the "fat tail effect"

The current concerns about the economy are not driven by interest rate issues. The Fed will take rate cuts when the economy is facing a serious crisis, but will not act in advance. The White House insists on its right to manage the economy, putting the Fed in a secondary position, and believes that potential weaknesses in the private sector will be exposed as government spending is cut. They are obviously willing to accept the economic downturn as part of rebuilding the country’s economic structure – but their shock therapy will amplify to unexpected results, highlighting the “fat tail effect.” Against this backdrop, the Fed has no reason to intervene in advance. Lowering fund interest rates to maintain market stability will only make future inflation problems worse, especially when economic downturns fail to become a reality and short-term economic weakness is not inevitable.

Goldman Sachs

We expect the FOMC to reiterate that it is not in a hurry to cut further interest rates and intends to stay on the sidelines until policy changes under the new government become less volatile and uncertain and the outlook becomes clearer. Although, we expect FOMC attendees to reconsider their forecasts as the first tariffs have already aihuaforex.come into effect and further tariff increases seem likely to happen.

Dot Matrix: We suspect that the Fed is still inclined to do the 2025 dot map median point continues to show two interest rate cuts to avoid increasing market recent turmoil. We also expect the median dot maps to remain unchanged in 2026 and 2027, which means interest rate paths for 2025, 2026 and 2027 are 3.875%, 3.375%, and 3.125%, respectively, although the annual average will be higher than the last time. Long-term or neutral interest rate forecasts may continue to climb from 3% to 3.125%.

Economic forecast: It is expected to show that the core PCE inflation rate will be raised by 0.3% to 2.8% in 2025, while the GDP growth rate will be lowered by 0.3% to 1.8%, which mainly reflects the impact of tariff news.

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