Japanese Yen: Faster BoJ tightening supports gains against US Dollar - MUFG
MUFG’s Halpenny expects the BoJ to deliver a 25bps hike to 1.25%, with communications outlining further rate increases and supporting efforts to strengthen the Japanese Yen. However, he warns Governor Ueda may sound cautious versus aggressive market pricing for 90bps of hikes.
MUFG analyst Halpenny anticipates the Bank of Japan (BoJ) will raise interest rates by 25 basis points to 1.25% in their upcoming decision. He expects communications from the BoJ to further signal intentions for additional rate hikes. However, he cautions that Governor Ueda might sound more conservative than the market's aggressive expectations of a 90-basis point hike over the next year.
A miss on market pricing could strengthen the USD/JPY pair, although recent moves suggest the BoJ's tightening efforts are increasingly influencing currency direction. The BoJ is set to announce its monetary policy decision early tomorrow, with markets pricing a near 100% chance of the 25-basis point hike. The BoJ's actions are seen as aligning with coordinated efforts between Japan and the US to strengthen the yen.
However, there is a risk that Governor Ueda's comments may fall short of market expectations, given that 90-basis point hikes are priced over the next 12 months. The 2-year US-JP swap spread indicates upside risks to the USD/JPY pair, as the co-movement between the two currencies has become more resilient since December last year. Any disappointment in matching market pricing could lead to a notable bounce in USD/JPY.
Written by urgent.news from FXStreet's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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