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Jan 16 - 02:55 PM

MUFG: BoJ Sends Strong Signal of a Rate Hike Next Week

By eFXdata  —  Jan 16 - 01:00 PM

Synopsis:

The yen strengthened overnight, with USD/JPY falling below recent highs as expectations build for the Bank of Japan (BoJ) to hike rates at next week’s policy meeting. A Bloomberg report reinforces confidence in a potential hike, supported by solid economic and inflation data and positive wage growth trends.

Key Points:

  • USD/JPY Movement:

    • USD/JPY dropped to an intraday low of 155.21, further below last week's high of 158.87.
    • The yen's strength reflects growing anticipation of BoJ action.
  • BoJ Outlook:

    • A Bloomberg report suggests BoJ officials see a high likelihood of a rate hike next week unless Donald Trump's policies trigger major surprises.
    • Officials view Japan’s economy and inflation as largely aligned with projections, bolstering confidence in the bank’s stable 2% inflation target.
    • Inflation forecasts excluding fresh food and energy are expected to be upgraded for the current and next fiscal years.
    • Wage growth optimism is reinforced by outcomes from the Branch managers’ meeting and expectations for robust spring wage negotiations.

Conclusion:

The report strongly signals that the BoJ is preparing for a rate hike, supported by favorable economic indicators and wage growth expectations. Market participants should brace for potential yen strength leading into the policy announcement.

Source:
MUFG Research/Market Commentary

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