Synopsis:
Bank of America expects the BoJ to hold rates steady at its May 1 Monetary Policy Meeting (MPM), with Governor Ueda striking a balanced tone amid heightened tariff uncertainty. Markets are closely watching for guidance on potential rate hikes, but BofA sees downside risks to Japan’s growth preventing further tightening in 2025.
Key Points:
-
BoJ Policy Expectations:
-
BofA's base case is that the BoJ will not hike again in 2025 due to growing downside risks from tariffs and economic uncertainty.
-
However, some market participants believe the BoJ could hike in June/July, while others think JPY realignment via US-Japan trade talks might necessitate policy tightening—a scenario BofA sees as unlikely.
-
-
Market Pricing and Sentiment:
-
Rate hike expectations have been scaled back: terminal rate now seen at ~0.75% (vs. 1.25% previously), with the next hike pushed to late 2025.
-
Speculators are heavily long JPY, with CME data showing record-high long positioning.
-
USD sentiment remains bearish, but USD/JPY has shown signs of stabilization, especially during London trading hours.
-
-
FX Implications:
-
While a June or July hike is priced at just under 30%, BofA believes risks are skewed to a USD/JPY bounce due to:
-
Positioning crowding on the long JPY side.
-
Stabilizing technicals in intraday trading.
-
-
Conclusion:
BofA expects the BoJ to hold policy steady in May and is cautious on further hikes in 2025. With long JPY positioning stretched and USD/JPY showing signs of support, the near-term bias may tilt toward a USD/JPY rebound, even if structural headwinds for the dollar persist. Markets will watch Ueda's tone and forward guidance for clues on whether June/July hikes remain on the table.
