Himino Signals Hawkish Shift: BoJ Rate Hike Expectations Remain Elevated

Japanese Deputy Governor Himino's speech has been seen as a hawkish shift in policy, aligning with market expectations for a Bank of Japan (BoJ) rate hike in September. According to MUFG's Derek Halpenny, the BoJ is shifting towards a faster pace of tightening, with FX developments increasingly central to its inflation outlook.

Himino's comments were seen as generally consistent with a policy board that appears to be shifting its strategy and considering a faster pace of rate hikes. Despite some disappointment that he was not more explicit, Himino stated that the BoJ needed to 'pay more attention to upside inflation risks than before', which is seen as the closest thing to guidance on an increased pace of rate hikes.

The BoJ has also upped the emphasis on the importance of FX to the inflation outlook, showing alignment with the Ministry of Finance (MoF) in not wanting the yen to continue weakening. With nearly all the rate hike pricing still intact after the meeting, MUFG believes that the job has been done by the BoJ in giving a clear signal of intent.

The next key event will be Jackson Hole, where Naoki Tamura will attend instead of Governor Ueda. Tamura is an interesting choice due to his vocal support for a faster pace of monetary tightening, having stated in June that he believes rate hikes should occur 'at intervals of a few months' to get the policy rate to the neutral rate around 2.00% more quickly.

Looking ahead, there is no top-tier economic data today, so markets are expected to be subdued before the Warsh speech at Jackson Hole tomorrow at 15:00 BST.