The Bank of Japan (BoJ) unexpectedly raised interest rates, prompting a hawkish reaction in the yen. Governor Ueda's cautious tone and projections for future inflation suggest further tightening may be on the horizon.
The Bank of Japan (BoJ) increased interest rates by 25 basis points this morning, aligning with market anticipations and consensus. As of this writing, markets are still evaluating Governor Kazuo Ueda's press conference. However, the yen's reaction to the overall event indicates a hawkish surprise, primarily attributed to the upward revisions in both headline and core CPI forecast projections, as noted by ING's FX analyst Francesco Pesole. USD/JPY could potentially be pushed towards the 155.
0 mark. Policymakers now project inflation to reach 2.4% (up from the previous estimate of 1.9%) in 2025. The BoJ further emphasized its commitment to 'continue to raise the policy interest rate and adjust the degree of monetary accommodation,' echoing the language used in the July statement. Some previous remarks by Ueda regarding the possibility of delaying the rate hike if markets exhibited excessive volatility following Trump's inauguration have been clarified. The statement highlights that markets have generally remained stable.USD/JPY briefly traded below 155.0 this morning before retracing some losses as Ueda adopted a relatively cautious tone during the press conference. He refrained from providing any indications regarding the timing or pace of future rate hikes. Two-year JPY swap rates have only modestly increased to 0.74%, suggesting that there is still scope for a hawkish repricing in the future to support the yen. We anticipate two additional rate hikes in May and October of this year. These increases could help the yen mitigate the generalized dollar strength and exert some pressure on USD/JPY, potentially pushing it towards the 155.0 mark
Economics Bank Of Japan Interest Rates Inflation Yen USD/JPY
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