USD/JPY flows: BoJ fumble hike, Ueda comments straddle both sides of the fence
Sell the fact on the hike had always seemed the risk, and USD/JPY lifts another yen to 157~
Ueda press conference a mixed bag, both hawkish remarks and dovish/slow comments in the mix
All about the BoJ in the Asia session and into early Europe. As had seemed the risk, USD/JPY extended the bounce on ‘yen sell the fact’ after the BoJ hiked as expected but fell short of the explicit hawkishness the market wanted to see to immediately validate and bolster the faster tightening priced in. The 7-2 vote, with 2 doves dissenting (and no votes for 50bp) also went with that grain. The statement nonetheless did underscore that policy remained accommodative even after the hike.
Focus turns to BoJ Ueda’s press conference and here the comments have a little of something for everyone, with both hawkish and dovish or rather slow aspects that could talk your book.
On the step change side: will consider adjusting timing pace, of tightening while looking at the likelihood of achieving economic, price outlook baseline as well as the risks to those outlooks; short-term objective has changed significantly, phase of policy has changed. On the risks, Ueda notes the risks of underlying inflation overshooting target given wage and price setting behaviour becoming more aggressive, long-term inflation expectations rising, and the need for vigilance on upside risks including from the Middle East, and oil prices passing through.
On the dovish/slow side: Wants to see if inflation stays at 2% and stabilises at end of FY26, and also that spring wage negotiations will be key in determining whether the tend stabilises.( If the BoJ waits until then, then it would of course be on the old pace and well behind what the market had priced in). Ueda also adds need to avoid negative effects from drastic rate hike and on financial conditions from excessively fast tightening.
USD/JPY initially pegged back on some of the slightly hawkish headlines but now left ultimately disappointed around the figure. 157 is stronger resistance where the market current settles, but 158 is further up if the BoJ fumble sees recent supply back off looking for better levels.