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Rengo Tallies in Focus as Cross Outstrips Consensus and Implied Pricing

EURJPY
  • Markets are pricing in a considerably higher chance of further EUR/JPY gains relative to the beginning of the year, as the consensus for JPY gains across 2024 gets off to a poor start.
  • Given the Bank of Japan's expected shift away from negative interest rates in 2024, markets headed into 2024 with a broad consensus for JPY strength - median had looked for EUR/JPY to fade from Y157 in Q1, to Y154 at year-end.
  • With February FX month-end due next week, worth noting current spot moves leave the cross comfortably above consensus, making for a more-than one standard deviation move across the first two months of 2024.
  • The gyrations in spot have prompted markets to price in a higher likelihood of further gains in the cross, despite the potential for hawkish tilts at either the March 19th or April 26th BoJ decisions.
  • Markets now price a near 20% chance that EUR/JPY will have cleared 164.30 - the cycle high from November last year - after the March decision - an implied pricing that's more than tripled since the beginning of the year - and grows to near 1/4 when capturing the April meeting.
  • This shifts focus to the first of several tallies for Rengo pay deals due in mid-March - which should provide the latest firm indication for wages ahead. Consensus looks for pay growth of near 4% this year - the highest since 1992.
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