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USD/JPY tests 160 as BBH flags risk of bigger BoJ hikes

BBH says a jumbo BoJ hike could anchor inflation expectations, cap long-end yields, and help support the yen even though swaps price in only a small chance of the next move.

Reported · Written up by our desk · Major Pairs

Brown Brothers Harriman’s (BBH) Elias Haddad said USD/JPY is testing the 160.00 level, noting that hawkish comments from the Bank of Japan offered brief yen support overnight, even as market pricing remains relatively subdued.

BBH highlighted that Takata Hajime left the door open for a 50 basis point or 75 basis point move on September 18, and for back-to-back rate hikes, with a jumbo hike described as a real possibility that could anchor inflation expectations.

In BBH’s view, a more forceful policy shift could cap long-end yields and ultimately support the yen, and Haddad pointed to swaps pricing that implies only 5 percent odds of a 50 basis point hike on September 18.

The note also cited Kazuo Ueda’s view that the BoJ needs to pay greater attention than before to upside risks to inflation.

Latest closeUSD/JPY 158.82 ▼0.9%

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