Brown Brothers Harriman’s (BBH) Elias Haddad expects Japan’s June Consumer Price Index (CPI) to edge higher across headline and core measures, with core ex fresh food and energy steady at 1.8%. Swaps discount a 25 bps Bank of Japan (BoJ) hike by year-end and 50 bps over twelve months, still leaving rates near the lower end of neutral. Loose policy while growth runs above potential raises the risk of higher BoJ rate expectations, supporting the Japanese Yen.

Rising CPI and low rates favor Yen

"Headline CPI is expected at 1.7% y/y vs. 1.5% in May, core CPI ex. fresh food is expected at 1.6% y/y vs. 1.4% in May, and core CPI ex. fresh food & energy CPI is expected to print at 1.8% y/y for a second straight month."

"The swaps curve price in a 25bps Bank of Japan (BoJ) rate hike by year-end and a total of 50bps of hikes to 1.50% over the next twelve months."

"That would still leave the policy rate closer to the lower-end of the BoJ’s estimated neutral range (1.10%-2.50%)."

"Loose monetary policy when Japan’s economy is operating above potential raises the likelihood of an upward adjustment to BoJ rate expectations in favor of JPY."

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