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Japanese yen outlook hinges on BoJ rate path and oil shock

Brown Brothers Harriman expects the BoJ to hold its policy rate at 1.00% after June’s 25 bps hike, while swaps pricing points to only gradual tightening through year end.

Reported · Written up by our desk · Major Pairs

Brown Brothers Harriman analyst Elias Haddad expects the Bank of Japan to keep its policy rate at 1.00% after a June hike, citing inflation that remains below the BoJ’s 2% target. The firm also said markets are pricing only gradual tightening rather than a faster shift in policy.

Haddad noted that the USD/JPY move higher has been supported by firmer oil prices, which helped push the pair to near a 40-year high last week. He added that without a renewed oil shock, Japan’s broader macro backdrop would likely support a firmer Japanese yen over the following weeks.

BBH said the swaps curve implies a 25 bps rate hike by year end and total tightening of 60 bps over the next 12 months, taking policy toward a 1.50% to 1.75% range. That path, according to the analysis, would still leave the policy rate near the middle of the BoJ’s estimated neutral range of 1.10% to 2.50%.

Latest closeUSD/JPY 163.79 ▲0.4%

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