USD/JPY holds steady near 147.20 as BOJ maintains tightening bias - BBH

USD/JPY traded in a narrow range around 147.20 after BOJ Board Member Junko Nakagawa reaffirmed the bank's tightening bias but signaled that a September move is unlikely. With inflation momentum still subdued and growth lacking, markets look instead to the October Tankan survey for guidance, while longer-term pricing points to modest hikes ahead, BBH FX analysts report.

Nakagawa points to Tankan Survey, downplays September hike odds

"USD/JPY traded in a tight range around 147.20. Bank of Japan (BOJ) Board Member Junko Nakagawa stuck to the bank's tightening bias. Nakagawa noted that if the outlook for economic activity and prices is realized, 'the bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation'."

"Nakagawa also signaled that the Tankan business survey due out October 1 is policy-relevant, suggesting a rate hike at the next September 19 meeting is highly unlikely (5% priced-in by the swaps market). Further out, the swaps market imply 70% odds of a 25bps rate hike by year-end and a total of 75bps of rate increases to 1.25% over the next three years."

"We doubt the BOJ will raise the policy rate by more than is currently priced-in. Japan CPI less food & energy has held below 2% for over a year and the economy shows little sign of gaining real momentum. We expect USD/JPY to remain within a wide 142.00-150.00 range over the next few months."