MUFG’s Derek Halpenny notes that the Japanese Yen reaction to Deputy Governor Himino’s speech was limited, even as his comments aligned with market expectations for a Bank of Japan rate hike in September. The BoJ is seen shifting toward a faster pace of tightening, with FX developments increasingly central to its inflation outlook, while Jackson Hole and Naoki Tamura’s participation frame the near-term policy narrative.

BoJ hike expectations stay elevated

“The Fed on hold on 16th September looks likely to then be followed by a hike by the BoJ. Today, Deputy Governor Himino gave a key speech and with pricing for a rate hike at over 80% it was important that Himino’s comments were seen to endorse that. His comments were generally consistent with a policy board that appears to be shifting its strategy and considering a faster pace of rate hikes.”

“The yen weakened back in response to his speech suggesting some disappointment that Himino was not more explicit but while he did not explicitly give a signal of a hike next month, his general tone was certainly on the hawkish side. Himino gave a speech and then later a press conference and on both occasions stated that the BoJ needed to “pay more attention to upside inflation risks than before”. That to us is the closest you will get to guidance that the pace of rate hikes could be increased.”

“Himino also confirmed that the BoJ did not need to have the full data on assessing the impact of past rate hikes before moving again. The BoJ has also upped the emphasis on the importance of FX to the inflation outlook which shows alignment with the MoF in not wanting the yen to continue weakening.”

“With nearly all the rate hike pricing still intact after the meeting we would say the job has been done by the BoJ in giving a clear signal of intent. Jackson Hole will now come into focus, and Naoki Tamura will attend Jackson Hole instead of Governor Ueda. He is an interesting choice to attend given he is a vocal proponent of a faster pace of monetary tightening having stated in June that his view was a rate hike “at intervals of a few months” to get the policy rate to the neutral rate around 2.00% more quickly.”

“There is no top tier economic data today so we would expect a subdued day for the markets ahead of the Warsh speech at Jackson Hole tomorrow at 15:00 BST.”