Japanese Yen: Strong CPI bolsters case for BoJ hikes; USD expected to remain rangebound - BBH

Hotter Japanese Consumer Price Index (CPI) figures and steady Purchasing Managers' Index (PMI) readings support further Bank of Japan (BoJ) rate rises, according to Brown Brothers Harriman (BBH) strategist Elias Haddad. Against that backdrop, he says the Japanese Yen (JPY) is leading gains and serving as the ultimate refuge currency. Nevertheless, inflation remains below the BoJ's projections and the likelihood of a near-term rate rise is limited. Haddad therefore expects USD/JPY to remain within a defined range unless risk aversion deepens.

Yen outperforms as investors seek refuge

"JPY leads gains, underscoring its status as the ultimate refuge currency. Japan September CPI and October PMI back additional BOJ hikes. Both headline and core ex. fresh food CPI rose to a nine-month high of 2.1% y/y, matching consensus, vs. 1.9% and 1.7% in August, respectively."

"Core CPI ex. fresh food & energy inflation was hotter at 2.4% y/y (consensus: 2.3%) vs.1.9% in August."

"Nonetheless, the BOJ is unlikely to crank up the pace of tightening with headline and core CPI inflation tracking below its 2026 projection of 2.5%. The swaps curve price in just 2% odds of a 25bps BOJ rate hike to 1.50% on October 30, and 80% probability of a hike on December 18."

"That leaves USD/JPY likely to trade within a 155.00-160.00 range in the near term. A deeper rout in the AI trade, can fuel more safe haven demand for JPY and drive the cross below 155.00."

"Meanwhile, the October composite PMI held at 52.3, consistent with resilient private sector growth. Faster services activity offset slower manufacturing expansion."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)