Elias Haddad of Brown Brothers Harriman (BBH) believes that with inflation currently below goal and market pricing only gradually tightening, the Bank of Japan (BoJ) will maintain its policy rate at 1.00% following the hike in June. Haddad points out that Japan's macroenvironment would normally support a stronger Japanese Yen (JPY) over the upcoming weeks, despite the fact that the USD/JPY has increased due to rising oil prices.
BoJ is on pause as the USD/JPY rises.
"After delivering a well-telegraphed 25bps boost in June, the BoJ is generally expected to maintain the policy rate at 1.00%. The bank's 2% target for inflation is being exceeded.
"The swaps curve predicts a rate increase of 25 basis points by year's end and a tightening of 60 basis points to 1.50 to 1.75 percent over the following 12 months. Even if the economy is performing over potential, the policy rate would still be close to the middle of the BoJ's anticipated neutral range (1.10%–2.50%).
"Last week, the USD/JPY jumped to almost a 40-year high, supported by stronger crude oil prices. Japan's macroenvironment would support a stronger JPY in the absence of the fresh oil shock.
BoJ is on pause as the USD/JPY rises.
"After delivering a well-telegraphed 25bps boost in June, the BoJ is generally expected to maintain the policy rate at 1.00%. The bank's 2% target for inflation is being exceeded.
"The swaps curve predicts a rate increase of 25 basis points by year's end and a tightening of 60 basis points to 1.50 to 1.75 percent over the following 12 months. Even if the economy is performing over potential, the policy rate would still be close to the middle of the BoJ's anticipated neutral range (1.10%–2.50%).
"Last week, the USD/JPY jumped to almost a 40-year high, supported by stronger crude oil prices. Japan's macroenvironment would support a stronger JPY in the absence of the fresh oil shock.
