Standard Chartered’s Chong Hoon Park and Nicholas Chia expect the Bank of Japan (BoJ) to deliver a 25bps rate hike in September but maintain a gradual normalisation path. They argue that USD/JPY is unlikely to fall on BoJ tightening alone and project the pair returning to the upper half of the 155-160 range in Q4, as recent JPY positives appear fully priced.

BoJ hike seen yet Yen upside limited

“We expect the BoJ to raise the policy rate by 25bps to 1.25% at its 17-18 September meeting, while avoiding an overly hawkish message.”

“We therefore view a September move as a pre-emptive hike, followed by a more patient phase of policy normalisation.”

“We have maintained that outsized rate hikes by the BoJ or swift repatriation by the GPIF are unlikely.”

“In other words, we think the JPY’s positives are already priced in, and therefore see a low bar for the market to be surprised negatively on either front.”

“We see USD/JPY returning higher to the upper half of the 155-160 range in Q4.”