Brown Brothers Harriman (BBH) analyst Elias Haddad expects the Bank of Japan (BoJ) to keep its policy rate unchanged at 1.00% following its June increase, as inflation remains below the 2% target and market pricing points to only modest tightening. While the USD/JPY pair has risen on higher oil prices, Haddad notes that underlying macro conditions would support a stronger yen in the weeks ahead.
BoJ seen on hold as USD/JPY elevated
The BoJ is widely expected to maintain the policy rate at 1.00% after a well‑communicated 25‑basis‑point hike in June. Inflation remains beneath the central bank’s 2% goal.
Market participants’ swap pricing implies a 25‑basis‑point increase by year‑end and a cumulative 60‑basis‑point tightening to a range of 1.50%–1.75% over the next twelve months. That would place the rate near the midpoint of the BoJ’s neutral band of 1.10%–2.50%, even as the economy operates above its potential.
USD/JPY climbed to near a 40‑year peak last week, driven by firmer crude oil prices. Absent further oil‑price shocks, Japan’s macro backdrop should favor yen appreciation.
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