USD/JPY caught a breather on Thursday, now stabilising slightly above 154.0, ING’s FX strategist Francesco Pesole notes.
“The size of JPY short positions and the risk-off mood in the market mean there is probably more room for a rebound in the Japanese Yen (JPY) before this adjustment can be complete. In our view, markets are also underestimating the chances of a 15bp Bank of Japan (BoJ) hike next week.”
“Tokyo consumer price data showed that headline inflation edged down to 2.2% YoY in July (vs 2.3% in June, market consensus), but the BoJ’s preferred measure, core inflation excluding fresh food, rose to 2.2% in July (vs 2.1% in June, 2.2% market consensus).”
“We believe that inflationary pressure in services continues to build. It is a close call, but we maintain our view that the BoJ will hike rates by 15bp and reduce its bond-buying programme at the same time.”