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USD/JPY pain to return as surging inflation tees up BoJ for further hawkish foray

Published 01/10/2023, 05:06 PM
Updated 01/10/2023, 05:14 PM
© Reuters

By Yasin Ebrahim -- The dollar has attempted to steady since its recent rout against the yen, but the yen could bring the pain once again after the latest data showing Tokyo inflation hitting four-decade highs ramped up bets on the Bank of Japan making a further foray into hawkish territory next week. 

USD/JPY fell 0.1% to 132.15.

“If there are already signs next week that the BoJ really is moving further away from its ultra-expansionary stance, I would expect USD-JPY to quickly fall below 130,” Commerzbank said in a note.

The call comes as the latest data showed inflation rose to 4% in December year-on-year, double the BoJ’s target and the highest since 1981.

The Bank of Japan surprised markets earlier this month after announcing it would tweak its yield curve control program, which keeps Japanese government bond yields capped at a defined target level.

The central bank said it would allow its 10-year Japanese government yields to rise as much as 50 basis points, or 0.5%, up from a previous cap of 0.25%.

The move has put the central bank’s policy measures in the spotlight, with many debating on whether it was a mere aberration or the start of a new era of monetary policy for the BoJ.

The red-hot inflation has only furthered speculation that the BoJ will continue to retreat from its dovish monetary policy.

“The inflation figures for Tokyo…likely to fuel speculation that the BoJ will have to adjust its inflation forecasts in its quarterly outlook next week and move a step further away from its expansionary monetary policy,” Commerzbank added.

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