- BOJ will look at likelihood of its scenario and risks in assessing its next steps
- That includes taking into consideration Middle East conflict, AI demand, FX impact
- Those factors will help determine pace and timing of future rate hikes
- We believe we can stabilise underlying inflation at 2% with appropriate policy moves
- We will debate at each meeting the desirable pace, timing of rate hikes to do so
- My own personal view on the economy, prices has not changed much since July meeting
- But likelihood of baseline scenario materialising may have risen somewhat since July
- Agrees with proposition that BOJ may step up rate hikes if financial conditions are too accommodative
- However, rate hike decision cannot be made solely on degree of financial accommodation
The same old, same old from the BOJ in not wanting to be explicit about their next steps. But as things stand, traders are pricing in ~66% odds of a rate hike for next month and a full 25 bps rate hike is already priced in by the October meeting. So, there’s that for policymakers to take into consideration.
As mentioned before, there seems to be a suggestion that US-Japan joint intervention to bolster the defense of the yen currency had involved some silent agreement for the BOJ to play their part too. We shall see I guess.
But with USD/JPY now moving back up to above 159.00 levels again this week, the pressure is back on. That especially as Japanese authorities are running out of ideas to want to stop the rot in the currency.
This article was written by Justin Low at investinglive.com.