BOJ maintains rate hike outlook despite yen surge — MUFG | Forexlive

MUFG highlights that the Bank of Japan (BoJ) continues to signal potential rate hikes despite recent yen strength, with rising front-end yields expected to limit yen selling appetite.

Key Points:

• BoJ’s Stance: The BoJ has not shifted its monetary policy outlook despite recent market volatility and a significant drop in USD/JPY. Deputy Governor Himino reiterated that more rate hikes will be needed if economic conditions align with the BoJ’s forecasts.
• Market Reactions: The recent plunge in USD/JPY has not significantly altered the BoJ’s messaging. The 2-year Japanese Government Bond (JGB) yield remains below its highs from earlier in the year, suggesting potential for further yield increases.
• Rate Hike Expectations: With only 15 basis points of hikes priced in by March next year, MUFG considers this too low. A soft landing for the US economy could support one or two rate hikes by the BoJ, which could limit yen selling.

Conclusion:

MUFG believes the BoJ will likely maintain its rate hike trajectory despite recent yen strength, with rising front-end yields expected to curb further yen depreciation. The BoJ’s current communications are likely to reinforce this stance, maintaining a cautious but forward-looking approach to monetary policy.

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