Japanese Yen: BoJ tightening risks support JPY – BNY
BNY’s Wee Khoon Chong highlights that long-end JGB yields are rising on inflation and fiscal concerns, with markets pricing a roughly 50% chance of a 25bp BoJ hike in September and a full hike by year-end.
BNY’s analyst Wee Khoon Chong notes that long-end Japanese Government Bond (JGB) yields are increasing due to concerns over inflation and fiscal policy. There is a roughly 50% probability of a 25 basis point (bp) Bank of Japan (BoJ) rate hike in September and a full hike by year-end. The Bank of Japan’s July Monetary Policy Meeting (MPM) Summary of Opinions indicates a shift towards tighter policies, with risks of larger hikes if delays occur.
Long-end JGB yields have been climbing toward the upper range of recent levels. Some members suggested maintaining the policy rate unchanged to evaluate the delayed effects of the previous hike, but the overall sentiment leans toward further tightening. Discussions have moved away from raising inflation to 2% and towards avoiding an overshoot.
Members also cautioned that delaying action could necessitate more aggressive and larger rate hikes later, which could result in a "double shock." Markets currently anticipate a 50% chance of a 25bp BoJ rate increase in September and a complete hike by the end of the year.
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