Morning Bid: Reading BOJ's tea leaves

A look at the day ahead in European and global markets from Rae Wee

The Bank of Japan's (BOJ) decision to keep interest rates around zero didn't come as a surprise, and focus now turns to Governor Kazuo Ueda's press conference late on Friday for further clues on next steps.

Markets had their eye on the central bank's bond-buying amounts, where any scaling back of its aggressive purchases would have been regarded as quantitative tightening that could offer some reprieve for the battered yen.

Yet, the BOJ said it will keep buying government bonds based on guidance decided in March, even as it removed a reference to the amount of government bonds it has roughly committed to buying each month.

The yen fell in a knee-jerk reaction to the weaker side of 156 per dollar, marking a fresh 34-year low and leaving traders on alert for any signs of intervention from Tokyo.

It's somewhat reminiscent of the BOJ's policy meeting in September 2022, though the yen's slide then was much more rapid and pronounced.

That same day when the board announced its policy decision, Tokyo conducted its first yen-buying intervention since 1998.

Some analysts said history could repeat itself, especially given the strong warnings from Japanese authorities in recent days against excessive yen moves.

With a scant economic calendar in the UK and euro zone, the U.S. core personal consumption expenditures (PCE) price index data for March - the Federal Reserve's preferred measure of inflation - takes centre stage later on Friday.

Any upside surprises could again derail the timing for Fed rate cuts, with the first currently expected to come in September.

That the U.S. economy is holding up this well in the face of decades-high interest rates is somewhat astounding.

While the country's first-quarter GDP missed expectations, that was due to a surge in imports and a small build-up of inventories. Domestic demand, however, remained strong, business investment picked up and the housing recovery gained steam.

Economists at Wells Fargo touted the reading as a "wolf in sheep's clothing".

With just days to go before the next Fed policy meeting, it remains to be seen what Chair Jerome Powell will say this time.

Given the recent run of solid U.S. economic data, the narrative has changed not just to when the first rate cut could occur, but whether rate cuts may even come at all this year.

Key developments that could influence markets on Friday:

- U.S. core PCE price index (March)

- France Consumer Confidence (April)

- Reopening of 1-month, 3-month and 6-month UK government debt auctions

- NatWest Group PLC Q1 2024 earnings release

(Editing by Jacqueline Wong)