Japanese Yen: Firm CPI supports further BoJ hikes; USD expected to remain rangebound - BBH

155.00-160.00 is Elias Haddad’s expected near-term range for USD/JPY. The Brown Brothers Harriman (BBH) strategist sees that range holding unless risk aversion intensifies, given inflation remains below Bank of Japan (BoJ) projections and the near-term probability of a rate hike is limited. He identifies the Japanese Yen (JPY) as the leading gainer and ultimate refuge currency. Hotter Consumer Price Index (CPI) readings and steady Purchasing Managers' Index (PMI) data support further BoJ rate increases.

2.1% CPI: Yen Leads Safe-Haven Gains

"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."

(An editor reviewed this article, which was produced with assistance from an Artificial Intelligence tool. Find out more.)