BoJ Seen on Hold as USD/JPY Hits Near 40-Year High

According to Brown Brothers Harriman's (BBH) Elias Haddad, the Bank of Japan (BoJ) is expected to keep its policy rate at 1.00% after delivering a 25bps hike in June.

Inflation is still below the bank's 2% target, and markets are pricing only gradual tightening.

The swaps curve price in a 25bps rate hike by year-end and a total of 60bps of tightening to between 1.50% and 1.75% over the next twelve months.

This would still leave the policy rate near the middle of the BoJ's estimated neutral range (1.10%-2.50%) while the economy operates above potential.

The USD/JPY has surged to a near 40-year high due to firmer crude oil prices, but absent this shock, Japan's macro backdrop would favor a firmer JPY.