MUFG’s currency team highlights that Bank of Japan (BoJ) expectations for an April interest rate hike have declined, even as Japanese inflation data surprises on the upside. They warn that a dovish BoJ compared to the more hawkish Federal Reserve (Fed) could push USD/JPY to 160, increasing the risk of intervention as authorities seek to curb speculative selling of the yen (JPY) and signal a June interest rate hike is likely.
BoJ’s hawkish position against the faint yen
“Ahead of the FOMC meeting, the BoJ will tomorrow face expectations of an interest rate increase, which will decline significantly. At the beginning of April, a tightening of monetary policy was estimated at around 18 basis points, but it is now close to zero. The BoJ has provided the market with drip information suggesting that caution was justified at the April meeting due to the conflict in the Middle East.”
“However, Governor Ueda will need to balance between emphasizing the current uncertainty as a reason for caution and signaling that the BOJ will take action to limit the risk of rising inflation. The monetary stance remains loose and rising inflation will only reinforce the still deeply negative real interest rate. Friday’s nationwide CPI data for March revealed positive surprises on headline and core rates.”
“The BoJ therefore needs to mitigate this risk and provide a more hawkish message on the policy outlook. The BoJ will also release its updated forecasts tomorrow and it is likely that we will see inflation projections above the 2.0% target, given that in January the FY26 projection was 1.9% for core nationwide CPI and 2.0% in FY27. We expect the BoJ to issue a message signaling the likelihood of a hike at its next meeting and we currently assume boost of 25 bp to 1.00% in June.”
“Last week, FM Katayama once again announced the threat of intervention, and this news and the fact that the Fed checked USD/JPY interest rates in January helped limit the appetite to sell the yen above the 160 level.”
“Tomorrow’s BoJ announcement will be crucial to avoid a larger upward move in USD/JPY.”
(This article was created with the assist of an artificial intelligence tool and has been reviewed by an editor.)
