Brown Brothers Harriman’s (BBH Elias Haddad notes USD/JPY is stuck between resistance at 160.00 and support at the 200‑day moving average, as Bank of Japan (BoJ) officials maintain hawkish guidance and underlying inflation firms near the 2% target. Haddad expects a 25bps BoJ hike in September but argues a lower USD/JPY is more likely to be driven by a dovish Fed repricing than additional BoJ tightening.

Fed repricing key for Japanese Yen

“USD/JPY remains entrenched between resistance at 160.00 and support at the 200-day moving average (158.40). Bank of Japan (BoJ) Deputy Governor Ryozo Himino stuck to the bank’s hawkish guidance.”

“Himino stressed that “raising rates in a timely manner will help avoid a spike in inflation and abrupt rate hikes in the future,” adding “we should pay greater attention to the upside risk to prices than in the past.””

“Indeed, underlying inflation in Japan has firmed, though it remains around the BoJ’s 2% target or just below. We expect the BoJ to deliver a 25bps rate hike to 1.25% at its next September 18 meeting (80% priced-in).”

“In our view, the catalyst for a lower USD/JPY will come from a dovish Fed repricing rather than a hawkish BoJ repricing. We doubt the BoJ can tighten more aggressively than is currently implied over the next twelve months (75bps) given that underlying inflation pressures remain contained and private consumption activity was flat over Q2.”

“In the meantime, FX intervention threat significantly raises the cost of shorting JPY and limits USD/JPY overshoots above 160.00.”