Japanese Yen: Range-bound with upside hedge potential against US Dollar – BBH

Brown Brothers Harriman’s Elias Haddad highlights USD/JPY trading heavy near 157.30 after a hawkish hold from the Bank of Japan (BoJ). The BoJ kept rates unchanged but signaled ongoing tightening, upgraded its inflation outlook and sees upside inflation risks. Haddad expects USD/JPY to stay in a broad range, with deeper AI-related equity stress boosting Japanese Yen safe-haven demand.

BoJ hawkish hold supports Japanese Yen

"USD/JPY is heavy around 157.30. Bank of Japan (BoJ) delivered a hawkish hold. As was widely expected, the BOJ paused tightening and kept rates at 1.25%."

"Importantly, for the first time since adopting the 2% target in 2013, the BOJ declared underlying CPI inflation “generally consistent” with its goal. That strengthens the case for additional rate hikes to ensure inflation remains anchored there."

"Finally, the BoJ made minor growth revisions but raised its inflation forecasts for 2027. The BoJ also continues to see inflation risks “skewed to the upside” and the risk to the economic outlook as “generally balanced.”"

"There was no material shift to BoJ rate expectations. The swaps curve still price in 80% odds of a 25bps BoJ rate hike to 1.50% at the December 18 meeting and nearly 75bps of tightening in the next twelve months."

"As such, USD/JPY will likely continue to trade within a 155.00-160.00 range in the near term. But a deeper rout in the AI trade, can fuel more safe haven demand for JPY and drive the cross below 155.00."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)