May Forecast: Three Big Themes to Watch
1⃣ The Yen’s Dance with the Market
What’s Happening?
In the past few weeks the yen has taken a wild ride. It dipped past ¥160 to the dollar, which triggered a quick grab by the Bank of Japan (BOJ). Last month the BOJ is estimated to have bought around ¥5.5 trillion of yen—think of it as a massive grab bag of money, a stark contrast to the ¥9.1 trillion they snapped up back in late 2022 between September and October.
Why It Matters
- Capital Flow Wildcards – The key driver behind the yen’s slump is still a mystery. Will the capital flows that have been draining the currency keep going?
- Governance Overlap – Kuroda, who first stepped into the position a decade ago, famously said a weaker yen was sometimes a “necessary evil.” And his last act? Edging the yen back into a comfortable range.
- Ueda’s Milder Approach – The new governor is more cautious. He sees a weaker yen as a ticket to higher inflation and stronger growth, hoping those goals will lift GDP and ease the debt ratio, steering Japan away from a deflationary pitfall.
One thing is clear: a temporary fix from central‑bank intervention is as fleeting as a bad haircut. The real challenge lies in figuring out the yen’s fair value while dealing with slow‑moving growth and widening interest‑rate gaps with the U.S. The carry trade (borrowing yen to invest elsewhere) could be the fuel behind the depreciation, so a successful intervention might just dampen the fire’s reach.
What to Watch in May
The markets will be keeping an eye on the BOJ’s next move and whether it’s effective. If the yen continues to pull away, we could see a quivering trend—so, be ready for some volatility.
2⃣ Inflation Trends Across the West
Europe vs. U.S.
Across the Atlantic, things are looking a bit different. The UK and euro area are picking up the pace of growth, but the U.S. is still pushing ahead, demanding closer attention to how much previous policy tightening will slow these economies.
Rate Cuts?
- The European Central Bank (ECB) likely has a rate cut on the table for June, as inflation appears to be easing.
- Britain’s Bank of England could also swing into cuts this month. Yet the mixed signals from its MPC make the exact timing fuzzy.
Inflation’s future track is expected to smooth out, but the MPC will scrutinise both service‑sector and core inflation before committing.
3⃣ Development Bank Summits: Asia Meets Africa
Why They Matter
May will be busy. The Asian Development Bank (ADB) takes up the calendar early in Tbilisi, Georgia, for its first ever meeting there. Things on the docket? Climate‑friendly globalisation, Asia’s role in a greener world, and navigating global finance.
Later, the African Development Bank (AfDB) will close out the month in Nairobi. Their theme is the continent’s transformation and a reform of the global financial architecture.
Where’s the Attention?
Development banks are often sidelined, yet they’re essential in filling the financing gap for low‑income countries. The Bretton Woods Committee’s latest report (by a team I helped form) pushes for a new Climate Action Accelerator within the World Bank Group, increased speed and impact, and expanded risk‑sharing with the private sector.
MDBs are already achieving a lot, but the challenge is to keep evolving as the climate threat changes. Greater collaboration with client governments, other institutions, and, most critically, the private sector, will be key.
Stay on top of these stories, as they’re set to shape markets, policy, and global finance across May.
