BoJ Pricing Looks Stretched as Yen Gains Against Dollar
The Japanese Yen has seen renewed strength against the US Dollar, driven by expectations of more Bank of Japan rate hikes following recent comments from Takata and Ueda. MUFG's Derek Halpenny notes that current BoJ pricing looks stretched, with 30bps of tightening now priced for this month's meeting. The year-ahead pricing is close to 100bps.
Halpenny argues that while a hike by 25bps is plausible, a larger increase is unlikely. He believes the BoJ will only confirm a pickup in pace from every six months to every three months with a hike this month. There is still scope for further tightening if required.
The USD/JPY momentum has turned in favor of the yen, driven by weak US data and a more hawkish BoJ. Weak NFP and CPI data would reinforce downside momentum. Even though spreads have narrowed, volatility is incredibly low, but 1mth implied vol has jumped sharply.