BoJ minutes reveal low bar for rate hikes amid trade deal progress - BBH

Japanese Yen (JPY) and JGBs ignored the Bank of Japan Minutes of the June 16-17 policy meeting, BBH FX analysts report.

BoJ minutes suggest limited JPY upside despite rate hike prospects

"At that meeting, the BOJ unanimously decided to leave the policy rate at 0.50% and unveiled a plan to slow the pace of JGB purchases."

"Interestingly, the Minutes showed that 'A few members expressed the view that...the Bank would likely move on from its current wait-and-see approach and consider resuming the process of policy interest rate hikes, if trade friction was expected to progress without escalation.' On July 23, the US and Japan struck a trade deal, suggesting the bar for a BOJ rate hike later this year is low."

"The swaps market price-in 50% odds of a 25bps rate increase by year-end and a total of about 50bps of rate hikes to 1.00% over the next two years. The BOJ is unlikely to raise the policy rate by more than is currently priced-in, limiting JPY upside. One reason is that Japan CPI less food & energy has held below 2% for over a year and the economy shows little sign of gaining real momentum."