BNY’s Geoff Yu notes that Bank of Japan (BoJ) officials are reported open to raising rates faster than economists expected as Japanese Yen (JPY) weakness lifts inflation risks. Policy is still seen unchanged on July 31 after the benchmark rate was raised to 1%, but markets now price a meaningful chance of another hike by October, supporting USD/JPY volatility around 163.

Yen policy expectations shift higher

"BoJ officials are reported to be open to raising rates faster than many economists expected, as yen weakness adds upside risks to inflation and could encourage firms to lift prices further."

"The central bank is still widely expected to keep policy unchanged at its July 31 meeting, after increasing the benchmark rate to a 31-year high of 1% at last month’s meeting. However, officials may act earlier than December if needed."

"Policymakers reportedly see underlying inflation nearing the 2% target and are shifting their focus toward keeping price growth anchored, while markets are now pricing in a meaningful chance of another hike by October."

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