BoJ Rate Hike All But Certain, Ueda's Guidance to Determine JPY's Next Move
The Bank of Japan (BoJ) is poised to raise interest rates for the second time in three months, this time by 25 basis points to 1.25%. Financial markets are pricing in a near 100% probability of this action, making it all but certain.
However, while the rate hike itself is seen as a done deal, currency strategists are warning that Governor Kazuo Ueda's forward guidance will be crucial in determining the next steps for the Japanese Yen (JPY).
According to MUFG's Derek Halpenny, there is a notable risk that Ueda's comments may fall short of market expectations, which are pricing in 90 basis points of cumulative hikes over the next 12 months. This could lead to a 'sell the fact' unwinding in the JPY.
Danske Bank, on the other hand, expects the BoJ to signal a nimbler approach to rate hikes, which would help defend the yen's strength. The bank points out that recent CPI data justifies a shift away from the BoJ's historically sluggish approach.