Core Japanese inflation continuing to run at 3.4% YoY suggests the Bank of Japan will hike rates in October, ING’s FX analyst Chris Turner notes.
USD/JPY to be back pressing 146.00 ahead of the Fed meeting
“A 25bp hike in October is currently priced with a 42% probability. The BoJ may also be interested in hiking rates in order to stabilise the long end of the JGB market, where 30-year yields overnight hit the highest levels in over a quarter of a century. (The steeper yield curve is good news for Japanese banks, however, where the Topix banks index is up 23% year-to-date).”
“Given that our call is that the Fed will restart its easing cycle in September after all, it looks like the current run-up in USD/JPY will not last. We see gains petering out in the 148.75/149.10 area and would expect USD/JPY to be back pressing 146.00 ahead of the Fed meeting in September.”
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