JPY: Policy risks and BoJ hike prospects – HSBC

HSBC analysts argue that Takaichi’s strong mandate brings both upside and downside risks for JPY via fiscal choices and market perceptions. The bank underlines uncertainty over fiscal and monetary settings, notes that external shocks could still support JPY, and maintains a base case for a 25bp BoJ rate hike in July with rising odds of more.

Mandate, fiscal stance and rate outlook

"For the JPY, Prime Minister Takaichi’s strong mandate presents both opportunities and challenges."

"At present, there remains uncertainty regarding potential changes to fiscal spending, funding strategies, monetary policy, and foreign policy following the election."

"However, the JPY could still strengthen if external factors deteriorate, such as a sharp decline in US real yields, increased US fiscal risks, or a severe global economic shock prompting major central banks to cut rates."

"Our economists continue to forecast a single 25bp rate hike by the BoJ in July, though the risk of earlier or additional hikes is increasing, given ongoing JPY weakness and the likelihood of continued fiscal expansion under the new administration."

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