MUFG: The JPY
The yen has been the biggest mover overnight falling by around 0.5% against the US dollar which has lifted USD/JPY up to a high of 158.44. The main trigger for the yen’s sell-off was the release of the Summary of Opinions from the latest BoJ policy meeting from 17th-18,h September policy meeting. The Summary of Opinions appears to have disappointed some market participants who were looking for a stronger signal that the BoJ were open to another hike as soon as next month. It has prompted the Japanese rate market to scale back rate BoJ hike expectations. At the start of this week, the Japanese rate market had been pricing in around 10bps of hikes by the October policy meeting and that has now dropped to around 5bps. It fits with our view that another hike as soon as next month remains unlikely given that the BoJ had just sped up the pace of hikes this month and signalled that it is likely to continue hiking rates every three months. We expect another hike by the end of this year in December. The Summary of Opinions reiterated that underlying inflation is now getting closer to their 2.0% target, and the perspective of stabilizing it around 2.0% has become important in order to keep t
44. The main trigger for the yen’s sell-off was the release of the Summary of Opinions from the latest BoJ policy meeting from 17th-18,h September policy meeting. The Summary of Opinions appears to have disappointed some market participants who were looking for a stronger signal that the BoJ were open to another hike as soon as next month. It has prompted the Japanese rate market to scale back rate BoJ hike expectations.
At the start of this week, the Japanese rate market had been pricing in around 10bps of hikes by the October policy meeting and that has now dropped to around 5bps. It fits with our view that another hike as soon as next month remains unlikely given that the BoJ had just sped up the pace of hikes this month and signalled that it is likely to continue hiking rates every three months. We expect another hike by the end of this year in December. 0% has become important in order to keep the risk of underlying inflation deviating upward to a level above the price stability target and thereby exerting an adverse impact on the economy afterward.
It was for this reason that the BoJ considered there had been a shift in the phase of monetary policy. The BoJ added that “if signs of an upward deviation in prices are observed, they will need to accelerate the pace of rate hikes. We expect a rate hike every three months in the new phase of monetary policy. Rising rates in Japan should continue to offer support for the yen over time.
However, with the Fed and other major central banks also hiking rate at the same time it makes it is making it more difficult for Japanese policymakers to prevent a weaker yen.