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Yen seen supported as Japan CPI outlook tilts higher
BBH expects Japan’s June headline CPI to rise to 1.7% year over year, slightly above May’s 1.5%, which could lift rate expectations for the Bank of Japan.
Brown Brothers Harriman, via analyst Elias Haddad, expects Japan’s June Consumer Price Index to edge higher across both headline and core measures, a setup that BBH says could support the Japanese yen through improved BoJ rate expectations.
In BBH’s forecast, headline CPI is expected at 1.7% year over year versus 1.5% in May, while core CPI excluding fresh food and energy is projected to hold at 1.8% year over year for a second straight month.
BBH notes that swaps currently price about a 25 basis point BoJ hike by year end and about 50 basis points over the following twelve months, with policy still near the lower end of neutral, leaving room for CPI upside to matter for how the market prices future tightening.
The firm argues that if policy stays loose while growth runs above potential, the risk rises that investors push BoJ expectations higher, reinforcing yen support as rates move closer to a more neutral stance.