Japanese Yen: How is the BoJ outlook bolstering December hike odds? – BBH

The Japanese Yen (JPY) is seen benefiting from a shift in BoJ rate expectations, with firmer underlying inflation potentially paving the way for a more hawkish Outlook Report. Swaps indicate a high probability of a December increase to 1.50%. Before further tightening, however, Brown Brothers Harriman’s (BBH) Elias Haddad expects the Bank of Japan (BoJ) to leave its policy rate unchanged at 1.25% as it evaluates the impact of September’s hike.

Will a BoJ pause give way to a more hawkish outlook?

"The BoJ is widely expected to keep rates on hold at 1.25% and assess September’s 25bps hike before tightening again."

"In September, BoJ Governor Kazuo Ueda warned that rapid rate hikes could unsettle asset prices, adding that it could take some time to confirm that 2% inflation is entrenched."

"Still, firmer underlying inflation leaves scope for a more hawkish Outlook Report, lifting BoJ rate expectations in favor of JPY."

"The swaps curve price in 75% 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."

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