Bank of Japan: Hawkish hike prospects grow – DBS
DBS Group Research analysts Taimur Baig and Chang Wei Liang expect the Bank of Japan (BoJ) to hike rates by 25 bps at its September 17–18 meeting, citing solid Gross Domestic Product (GDP) growth, stronger wages and inflation near the 2% target.
Analysts from DBS Group Research, Taimur Baig and Chang Wei Liang, foresee the Bank of Japan (BoJ) raising interest rates by 25 basis points at their upcoming meeting on September 17-18. This projection is based on robust Gross Domestic Product (GDP) growth, rising wages, and inflation nearing the 2% target. The analysts believe that a hawkish approach is likely, although they rule out a 50 basis point hike or consecutive rate hikes as their default expectation.
It seems almost certain that the Bank of Japan will implement a hawkish 25bps increase while signaling a flexible pace for future rate adjustments. The most probable outcome is a 25bps hike with a message of a measured approach to subsequent meetings. Additionally, the central bank should be cautious about the market reaction to unexpected policy shifts, as a surprise rate hike in July 2024 sparked a significant yen carry-trade unwinding and market uncertainty.
The Second Quarter (2Q) GDP data confirmed that the economy continued to expand at a moderate pace of 1.4% quarter-over-quarter (QoQ) or 0.9% year-over-year (YoY) in the 2Q period. The Australian Dollar steadied around the mid-0.7100s in the Asian trading session on Friday, as the previous day's sharp decline to an over one-week low was halted.
The August Producer Price Index (PPI) report reinforced expectations of U.S. interest rate hikes, pushing the U.S. Dollar higher and impacting the AUD/USD pair. However, hawkish expectations from the Reserve Bank of Australia (RBA) mitigated losses for the Aussie as dollar bulls now wait for the release of U.S. consumer inflation figures before making fresh bets.
The U.S. Dollar remained weaker against the Japanese Yen after strong Japanese PPI data fueled a more hawkish BoJ outlook and provided fresh support for the yen. Despite this, the downside was limited as the U.S. Dollar maintained its gains from the previous session ahead of the latest U.S. consumer inflation data. Gold prices stabilized and traded significantly higher, reaching the $4,440 mark per troy ounce.
This rebound helped draw attention away from the previous day's decline in the U.S. Dollar following the release of the August inflation report.
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