Japanese Yen: BoJ risks skewed to stronger Yen – BBH
Brown Brothers Harriman's (BBH) Elias Haddad reports that the recent USD/JPY decline has stalled despite hawkish comments from Bank of Japan (BoJ) member Kazuyuki Masu, with markets already pricing a 25 bps hike to 1.25% on September 18. He sees a 50 bps move as possible given inflation near target and an economy above capacity, and outlines scenarios where risks are tilted toward a stronger Japanese Yen.
Fed and BoJ decisions drive Yen path
"USD/JPY decline has stalled. Hawkish remarks from BoJ member Kazuyuki Masu barely moved Japan rate expectations or JPY."
"Masu said “to complete the normalization of monetary policy in Japan, I am convinced that the Bank needs to raise the policy interest rate (currently 1.00%) further, so that it falls solidly within the estimated range of the neutral interest rate (1.10% and 2.50%)”"
"Markets have virtually fully priced in a 25bps BoJ rate hike to 1.25% on September 18 for several days now. In our view, a 50bps move cannot be ruled out given underlying inflation is very close to the 2% target and Japan’s economy is running slightly above capacity."
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