Morgan Stanley’s Japan head warns that without a Bank of Japan rate hike, the yen's slide against the dollar will persist, with traders now pricing a 40% probability of a July tightening move.
Morgan Stanley Japan head says BOJ rate hike is key to strengthening yen, implying that without tightening, the currency will remain weak. This puts downward pressure on USD/JPY as expectations build for a July hike, now priced at 40% probability.
A rate hike would narrow the US-Japan yield spread, lifting the yen and likely driving USD/JPY lower. Markets anticipate an initial drop of 1-2 figures on a 10bp move.
Traders are pricing a 40% probability of a July hike, with roughly 15 basis points of tightening expected over the next 12 months.
Immediate support is at 155.00, with a break below targeting 152.00. Resistance stands at 158.00, where exporter hedging activity may cap gains.
The head of Morgan Stanley in Japan stated that a Bank of Japan rate hike is essential to reverse persistent yen weakness. He argued that only monetary tightening can narrow the interest rate differential with the US, which has driven the yen to multi-year lows. Markets now price in a 40% chance of a BOJ move in July, shifting focus to upcoming inflation data.
He said a Bank of Japan rate hike is critical to reverse the yen's weakness and that without tightening, the currency will continue to slide.
Raising rates would narrow the wide interest rate differential with the US, which has been a major driver of yen depreciation.
Markets are pricing a 40% chance of a hike in July, though some analysts see a move as early as June if inflation data supports it.