Brown Brothers Harriman’s (BBH) Elias Haddad highlights USD/JPY testing key support at its 200-day moving average as Japanese data firm. Haddad notes private sector growth at a six-month high and July Consumer Price Index (CPI) in line with consensus but still below Bank of Japan’s (BoJ) 2026 core forecasts. Markets price an 82% chance of a September BoJ hike, yet he doubts significantly more tightening, while seeing scope for USD/JPY to grind lower on a dovish Fed repricing.
BOJ path and Fed repricing risks
“USD/JPY is testing key support at its 200-day moving average (158.34). Japan private sector growth strengthens to a six-month high in August. The composite PMI improved to 53.4 vs. 52.7 in July driven by increases in both manufacturing and services output.”
“Japan July CPI rose in line with consensus. Headline CPI increased to 1.9% y/y vs. 1.6% in June, core CPI ex. fresh food increased to 1.8% y/y vs. 1.6% in June, and core CPI ex. fresh food & energy increased to 1.9% y/y vs. 1.7% in June. Both measures of core CPI are tracking below the BOJ’s 2026 forecast of 2.5%.”
“The swaps curve price in 82% odds of a 25bps Bank of Japan (BoJ) rate hike to 1.25% at the next September 18 meeting. A total of 75bps of tightening is priced in over the next twelve months.”
“We doubt the BoJ can tighten more aggressively than is currently implied by given that underlying inflation pressures remain contained and private consumption activity was flat over Q2.”
“Nonetheless, USD/JPY can still grind lower because the risk is skewed towards a dovish Fed repricing. The US labor market is in balance, wage growth is consistent with the Fed’s 2% inflation target, and Fed policy is restrictive.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
