Synopsis:

Credit Agricole forecasts a 25bp rate hike at the BoJ's upcoming meeting, aligning with market expectations of nearly a 90% probability. The risk of a dovish hike could weigh on the JPY.

Key Points:

• Rate Hike Expectations:
  • The BoJ is forecast to deliver a 25bp rate hike, with markets pricing in nearly 90% probability for next week and close to fully pricing a follow-up hike by year-end.
• Inflation Outlook:
  • Investors anticipate the BoJ to revise inflation forecasts higher in its "Outlook for Economic Activity and Prices" report, providing a stronger rationale for tighter monetary policy.
• Market Risks:
  • A dovish hike remains a key risk for the JPY, as the BoJ could balance the hike with cautious forward guidance, tempering market expectations for an aggressive tightening cycle.

Conclusion:

While a BoJ rate hike is broadly expected, the central bank's tone will be critical for the JPY. A dovish approach could limit the currency's upside despite higher rates.