MUFG revises BOJ rate outlook: Sees two more hikes this fiscal year, USD/JPY to mid-140s

MUFG revises its outlook on the Bank of Japan, now anticipating two additional rate hikes within the fiscal year. This shift comes in response to the BoJ’s recent hawkish policy update, which has accelerated yen gains and could push USD/JPY towards the mid-140s.

Key Points:

1. Revised BoJ Rate Outlook:

   • Two Additional Hikes: MUFG now forecasts two more rate hikes from the BoJ within the current fiscal year (ending March 31).
   • Hawkish Policy Update: The BoJ indicated a stronger willingness to continue raising rates to normalize monetary policy in Japan.

2. Impact on JGB Yields:

   • Rising Yields: The hawkish repricing has pushed the 2-year JGB yield up by around 9bps, reaching 0.47%.
   • Real Policy Rate: BoJ Governor Ueda highlighted that the current real policy rate remains “profoundly negative” and well below neutral levels, suggesting further room for rate adjustments.

3. Yen’s Accelerated Gains:

   • Break Below Technical Support: The yen’s gains accelerated after USD/JPY fell below the 200-day moving average at approximately 151.50.
   • Testing Support Levels: USD/JPY tested the uptrend line support at around 148.50. A decisive break below this level could signal a more significant reversal.

4. Forecast for USD/JPY:

   • Further Downside: A break below 148.50 would end the uptrend from early 2023, potentially pushing USD/JPY towards the mid-to-low 140s by year-end.

Conclusion:

MUFG’s revised outlook on the BoJ now anticipates two additional rate hikes within the current fiscal year. The BoJ’s hawkish stance is providing more support for the yen, with USD/JPY potentially falling to the mid-140s if the pair breaks below key technical support levels.

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This article was written by Adam Button at www.forexlive.com.