According to Brown Brothers Harriman (BBH) analysts, USD/JPY has retraced about 50% of last week’s decline and is trading just under 155.00. The Bank of Japan’s recent policy meeting reinforced a cautious hiking bias, with a base case for another rate hike expected at the April 28 meeting. The swaps market is pricing in a 20% chance of a March hike and about 70% for April.

BOJ maintains cautious hiking bias

“USD/JPY has retraced about 50% of last week’s plunge and is trading just under 155.00. The Bank of Japan (BOJ) January 22-23 policy meeting Summary of Opinions reinforces the bank’s cautious hiking bias.”

“The swaps market price-in 20% odds of a March rate hike, and about 70% odds of an April rate increase. Our base case is for the BOJ to deliver another hike at the April 28 meeting – after the Shunto spring wage negotiations, which typically wrap up by mid-March.”

“This suggests there is plenty of room for the BOJ to normalize rates closer to the mid-point of its neutral policy range estimate (between 1% and 2.5%).”

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