BoJ Hawkish Stance Limits JPY Losses Against USD
The Japanese Yen (JPY) is stabilizing against the US Dollar (USD), thanks in part to the Bank of Japan's (BoJ) hawkish bias. According to Brown Brothers Harriman's (BBH) Elias Haddad, USD/JPY is consolidating just below a multi-decade high.
Private sector growth in Japan has strengthened, with the composite PMI improving to 53.1 in July, up from 52.8 in June. This increase was driven by the steepest rise in manufacturing production since February 2014, while services growth slowed slightly.
The BoJ's inflation forecast of 2.8% and 2.6% for core CPI ex. fresh food and energy, respectively, is being met with actual numbers that are well below these targets. The June Consumer Price Index (CPI) came in at 1.7% y/y, while core CPI ex. fresh food increased to 1.6% y/y.
The BoJ is expected to keep rates on hold at 1.00% next week after a 25bps hike in June. However, the swaps curve price in a total of 60bps of tightening over the next twelve months, which could still leave the policy rate near the middle of the BoJ's estimated neutral range.