USD/JPY pulls again after briefly breaching 145.00 as BOJ reaffirms warning – Société Générale

USD/JPY briefly breached the psychologically important 145.00 stage earlier than pulling again, as dovish remarks from BOJ Governor Ueda bolstered market expectations for a gradual and cautious coverage normalization. Regardless of some inflation gauges exceeding BOJ projections, underlying inflation stays subdued, limiting the urgency for price hikes, Société Générale’s FX analysts observe.

BOJ’s Ueda sees no rush to tighten

“USD/JPY edged up briefly above 145.00 earlier than retracing a part of its positive aspects. Financial institution of Japan (BOJ) Governor Kazuo Ueda signaled there was no rush for the financial institution to renew tightening coverage as a result of underlying inflation stays beneath 2%. Ueda is referring to CPI (all objects much less meals and vitality) which has remained kind of flat, between 1.5% y/y and 1.6% y/y this 12 months (chart beneath).”

“In distinction, CPI (all objects much less contemporary meals and vitality) elevated to three% y/y in April and is monitoring above the BOJ’s 2025 forecast of two.3%. Regardless, the swaps market nonetheless implies solely 50bps of BOJ price hikes over the subsequent two years and the coverage price to peak at 1.00%. The BOJ’s cautious normalization cycle is an ongoing headwind for JPY.”