Comment: Underpriced BoJ hike risks lowers bar to hawkish surprise
17/03/2025 10:35
March 17 (Reuters) - Markets appear to be underpriced on Bank of Japan tightening risks, which in turn lowers the bar to a hawkish surprise at this week's policy meeting on March 19. Currently, money markets have fully priced in one additional rate hike in Q4. However, with incoming inflation data likely to push policymakers ever more in the hawkish direction, the balance of risks favours a BoJ hike occurring sooner rather than later. The May monetary policy meeting pricing at around 16% therefore looks to be on the low side 0#JPYIRPR. Services PPI data, which is closely watched by the BoJ is hovering around levels not seen in almost a decade, above 3%. Meanwhile, the first round of wage hikes from Japan's largest trade union group, Rengo, is at 5.46%, higher than last year's record pay increase of 5.2%. With this in mind, BoJ officials are likely to be increasingly confident that inflation will be on a stable track to hit 2%. What this means for the yen is that while we are in a bearish period on a seasonal basis for the currency – bullish USD/JPY seasonality – increased tightening risks for the BoJ should benefit the yen in the longer run and thus limit short-term weakness. For more, click on FXBUZ BoJ pricing Mar 2025 https://tmsnrt.rs/4hiWknN (Justin McQueen is a Reuters market analyst. The views expressed are his own.) ((justin.mcqueen@thomsonreuters.com))