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May 20 - 02:55 PM

Morgan Stanley: Our Baseline Forecasts is for the BoJ to Hike in July

By eFXdata  —  May 20 - 01:30 PM

Synopsis:

Morgan Stanley provides insights into the anticipated monetary policy actions of the Bank of Japan (BoJ), predicting a rate hike in July. This projection aligns with recent statements from Governor Ueda and is supported by the bank's inflation outlook for Japan.

Key Points:

  • Upcoming Rate Hike: Morgan Stanley expects the BoJ to increase rates in July, citing recent communications from the central bank's governor as a key indicator of this policy shift.
  • Future Monetary Policy: The forecast includes one additional rate hike in the first quarter of 2025, contingent on inflation stabilizing and trending downward as anticipated.
  • Exchange Rate and Inflation Risks: The recent depreciation of the yen has heightened focus on its impact on inflation, particularly because Japan imports a significant portion of its energy. Any persistent weakness in the yen could prompt further interventions and potentially more aggressive rate hikes.
  • Global Monetary Context: The projection is partly based on expectations that the Federal Reserve will implement rate cuts totaling 75 basis points this year and 100 basis points next year, which should influence the yen's value.

Conclusion:

Morgan Stanley’s outlook suggests cautious optimism regarding Japan's economic policies, with a July rate hike anticipated based on current economic indicators and central bank communications. However, they also note the potential for upward risks to policy aggressiveness, should inflation not ease as expected or if the yen's value continues to decline. This scenario could lead to further interventions or additional rate hikes beyond the current forecast.

Source:
Morgan Stanley Research/Market Commentary

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