Japanese Yen: BoJ hike expectations support JPY against US Dollar – MUFG

MUFG’s Derek Halpenny and Lee Hardman report that Japanese government bond yields are rising despite weaker-than-expected GDP, as markets focus on prospects for further Bank of Japan rate hikes. They note elevated pricing for a September hike, lack of official pushback, and argue this, alongside weaker US data, should help curb renewed Japanese Yen selling in the near term.

Higher JGB yields and BoJ pricing

"This is certainly a weaker GDP report and will provide a challenge to the messaging from hawks at the central bank pushing for a more aggressive rate hiking path."

"That seems to be the view of market participants today that have instead focused on the reports at the end of last week that indicated the BoJ is set to push ahead with sooner rate hikes with the support of PM Takaichi and the government."

"The pricing for a 25bp hike at the next meeting in September remains elevated, implying around an 80% probability of a hike."

"There has been no public comment today from the MoF or BoJ to push back on the pricing in the rates market that further reinforces the credibility of the BoJ story last week."

"Weaker US data and BoJ pricing for a hike in September will help to curtail renewed yen selling over the short-term."

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