BOJ to maintain more hawkish stance, USD/JPY capped?
Aug 23 (Reuters) -Bank of Japan Governor Kazuo Ueda made it clear in Diet testimony Friday that the central bank will maintain its more hawkish stance going forward nL1N3KA01J. The upshot may be more USD/JPY weakness before the year is out.
Ueda statedthat the early Augustplunge in the Nikkei-225 indexwas due to concerns over a cooling U.S. economy and not necessarily the BOJ's end-Julyrate hike. He promised to remove more accommodation if the BOJ'scurrent growth and price outlooks prove correct, suggesting the possibility of more rate hikes before year-end.
He seemed to dismiss dovish comments from Deputy GovernorShinichi Uchida following the Nikkei's plunge to 31,156.12on Aug5 nP8N3JP06T. There is a perception in Tokyothat Uchida may have over-spoken on the panic in some circles afterthe Nikkei plunge. The index has since rebounded, recovering around two-thirds of the fall from its 2024high of 42,426.77 on July 11.
With Japan's economy on a much firmer footing nL1N3K200I and inflation sticky nL1N3KA00M, many in Tokyo believe the BOJ could hike again before the year is out nL4N3K60OV.
As the U.S. Federal Reserve looksto begin cutting rates in September nL1N3K90K0, nL4N3K3187, the contrast with BOJ policy should continue to argue for narrower Japan-U.S. interest rate differentials and, as a result, a lower USD/JPY.
USD/JPY fell to 141.68 EBS on Aug 5following the BOJ's end-July hike. It thenbounced to 149.40 on Aug 15but has eased back since. Renewed moves towards the Aug5 low and perhaps below 140 could be seen before long.
Related comments nL1N3K701W, nL1N3JS022, nL1N3JO02M.
For more click on FXBUZ
USD/JPY: https://tmsnrt.rs/3yM97yR
BOJ raises rate target to 0.25%, highest since 2008: https://reut.rs/3LLWmXR
Nikkei 225: https://tmsnrt.rs/4dXQsPz
Haruya Ida is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai
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