Japanese Yen: Strong CPI backs BoJ hikes as USD range set to hold - BBH

Brown Brothers Harriman (BBH) strategist Elias Haddad describes the Japanese Yen (JPY) as leading gains and acting as an ultimate refuge currency, supported by hotter Consumer Price Index (CPI) and steady Purchasing Managers' Index (PMI) data that back additional Bank of Japan (BoJ) hikes. However, with inflation still below BoJ projections and limited near-term hike odds, he expects USD/JPY to hold in a defined range unless risk-off intensifies.

Yen leads as refuge currency

"JPY leads gains, underscoring its status as the ultimate refuge currency. Japan September CPI and October PMI back additional BOJ hikes. Both headline and core ex. fresh food CPI rose to a nine-month high of 2.1% y/y, matching consensus, vs. 1.9% and 1.7% in August, respectively."

"Core CPI ex. fresh food & energy inflation was hotter at 2.4% y/y (consensus: 2.3%) vs.1.9% in August."

"Nonetheless, the BOJ is unlikely to crank up the pace of tightening with headline and core CPI inflation tracking below its 2026 projection of 2.5%. The swaps curve price in just 2% odds of a 25bps BOJ rate hike to 1.50% on October 30, and 80% probability of a hike on December 18."

"That leaves USD/JPY likely to trade within a 155.00-160.00 range in the near term. A deeper rout in the AI trade, can fuel more safe haven demand for JPY and drive the cross below 155.00."

"Meanwhile, the October composite PMI held at 52.3, consistent with resilient private sector growth. Faster services activity offset slower manufacturing expansion."

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