JPY Set for Further Gains Against USD Amid Market Expectations and BoJ Decisions
The Japanese Yen is expected to continue its upward trend against the US Dollar, according to Brown Brothers Harriman (BBH). The bank's Elias Haddad notes that recent market moves have been driven by oil prices and sticky US Consumer Price Index (CPI) inflation. This has strengthened expectations for a September Fed hike, but the futures curve already prices in nearly 100 basis points of tightening over twelve months.
The Fed and Bank of Japan decisions are set to take center stage this week, with risks tilted towards a lower USD/JPY. A hawkish outcome would likely extend the rally in JPY, while a surprise dovish move would supercharge it. However, BBH warns that the bearish scenario is a narrow majority for a 25bps hike and/or Ueda pushing back against market rate expectations.