Japanese Yen trades in a range with upside hedge potential against US Dollar – BBH

The Bank of Japan (BoJ) left rates unchanged but signalled further tightening, raised its inflation outlook and continued to see upside inflation risks. Following the hawkish hold, Brown Brothers Harriman’s Elias Haddad notes that USD/JPY remains under pressure near 157.30. Haddad anticipates a broad trading range for the pair, with any deepening of AI-related equity stress supporting safe-haven demand for the Japanese Yen.

Japanese Yen gains support from BoJ’s hawkish hold

"USD/JPY is heavy around 157.30. Bank of Japan (BoJ) delivered a hawkish hold. As was widely expected, the BOJ paused tightening and kept rates at 1.25%."

"Importantly, for the first time since adopting the 2% target in 2013, the BOJ declared underlying CPI inflation “generally consistent” with its goal. That strengthens the case for additional rate hikes to ensure inflation remains anchored there."

"Finally, the BoJ made minor growth revisions but raised its inflation forecasts for 2027. The BoJ also continues to see inflation risks “skewed to the upside” and the risk to the economic outlook as “generally balanced.”"

"There was no material shift to BoJ rate expectations. The swaps curve still price in 80% odds of a 25bps BoJ rate hike to 1.50% at the December 18 meeting and nearly 75bps of tightening in the next twelve months."

"As such, USD/JPY will likely continue to trade within a 155.00-160.00 range in the near term. But a deeper rout in the AI trade, can fuel more safe haven demand for JPY and drive the cross below 155.00."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)