Brown Brothers Harriman’s (BBH) Elias Haddad expects the Bank of Japan (BoJ) to keep its policy rate at 1.25% while assessing September’s hike before tightening again. Firmer underlying inflation could lead to a more hawkish Outlook Report, with swaps pricing a high probability of a December move to 1.50%. This shift in expectations is seen as supportive for the Japanese Yen (JPY).

BoJ hold but hawkish expectations build

“The BoJ is widely expected to keep rates on hold at 1.25% and assess September’s 25bps hike before tightening again.”

“In September, BoJ Governor Kazuo Ueda warned that rapid rate hikes could unsettle asset prices, adding that it could take some time to confirm that 2% inflation is entrenched.”

“Still, firmer underlying inflation leaves scope for a more hawkish Outlook Report, lifting BoJ rate expectations in favor of JPY.”

“The swaps curve price in 75% 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.”