Economists at TD Securities discuss the Bank of Japan (BoJ) Interest Rate Decision and their implications for the USD/JPY pair.
Hawkish : Complete removal of YCC The BoJ scraps YCC and sets the stage for the end of NIRP as the virtuous cycle of price and wage hikes is taking off. The Bank is likely to shade up the FY24 core inflation forecast but more importantly, the FY25 core inflation forecast may have a 2% handle to reflect the exit from Japan's deflationary past. USD/JPY -2.5%. Base Case : Raise in upper ceiling to 1.5% The BoJ widens the upper end of the reference range for 10y JGBs from 1% to 1.
Implicitly behind the tweak, the BoJ is likely cognizant that it’s a tough battle to curb the rise in yields given offshore moves, and real rates may become too accommodative as a result of the shift higher in inflation expectations. Ueda could take this chance to set the ground for an end to YCC in Dec and the end of NIRP in Jan'24. USD/JPY -1%.
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