The Bank of Japan is on track to deliver a 25 basis point rate hike in June, according to ING economist Min Joo Kang, continuing its gradual monetary policy normalisation despite softer than expected inflation data in May. The central bank’s tightening stance is being driven by sustained economic resilience, persistently negative real interest rates, and ongoing upside risks to inflation that overshadow recent headline softness.
Underlying price pressures remain elevated, while wage growth continues to show firmness, providing the BOJ sufficient justification to proceed with further policy normalisation. This move would mark another step in the bank’s historic shift away from ultra-loose monetary conditions. The anticipated rate increase is expected to push Japanese Government Bond yields higher, directly impacting yen positioning and carry trade strategies.
Traders should prepare for increased volatility in yen crosses and JGB markets as June approaches, while those holding long JPY positions may see support from the hawkish trajectory.
FXnCO Insight
Position for yen strength ahead of June’s likely BOJ hike, particularly against currencies where central banks are nearing easing cycles.
Source: FXStreet