BoJ Policy Stance Favors Japanese Yen Recovery

According to Brown Brothers Harriman's (BBH) Elias Haddad, the Japanese Yen (JPY) may see a recovery against the US Dollar (USD) in the coming weeks. This is despite recent gains in USD/JPY due to higher oil prices.

The Bank of Japan (BoJ) is expected to keep its policy rate at 1.00% after hiking it by 25bps in June, as inflation remains below target. Markets are pricing only gradual tightening, with a total of 60bps of tightening anticipated 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. Absent the renewed oil shock, Japan's macro backdrop favors a firmer JPY.