JPY: BoJ to hold, but hike chances underpriced - ING

G10 central bank activity this week starts with the Bank of Japan, which is widely expected to keep rates at 0.5% overnight, ING's FX analyst Francesco Pesole notes.

Yen remains a rather attractive hedge at the moment

"But the primary focus, alongside any forward guidance, will be on the interim review of Japanese government bond purchase operations. Despite speculation that the BoJ might reduce its quarterly purchases from 400 billion yen to 200 billion yen, it is expected to maintain the current pace."

"While the BoJ may not give much away in terms of rates guidance at tomorrow's meeting, we think the risks are definitely skewed to the hawkish side. In our view, markets continue to underestimate the risks of a rate hike as early as July or September, which are 10% and 25% priced in at the moment."

"We think the yen remains a rather attractive hedge at the moment, especially if US equities face more hits from geopolitics. Excessive rallies in oil prices may dent the attractiveness of the yen as a safe-haven, but a hawkish repricing in BoJ expectations should make up for it in our view."