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USD/JPY: Dovish BoJ suggests modest yen depreciation CIBC

Analysts at CIBC consider that your choice of the lender of Japan to keep using its easing policy could keep the yen limited. They forecast the USD/JPY at 135 by the finish of the 3rd quarter and at 132 by year-end.

Key Quotes:

To no real surprise, the BoJ maintained its commitment to broad monetary policy easing at its recent meeting. We’d expect that any change in the policy environment is defined to be left to Kurodas successor after Q1 2023.

The scale of holdings, amplified by recent measures to guard the 0.25% yield cap, may eventually prompt the BoJ to take into account an adjustment in the YCC threshold. However, for the present time, we remain biased towards a perpetuation of easy policy, maintaining an easy defensive status for JPY.

BoJ policy inertia must be set against a downgrade in growth assumptions and an upgrade in the CPI profile. With regards to the former, the growth assumption for the existing fiscal year was trimmed from 2.9% in April to 2.4% now.

Yet while inflationary pressures for the existing year are revised up, core charges for fiscal year 2023 remain well below target at 1.4%, previously 1.2%. BoJ Governor Kuroda will probably note that tame underlying trend as justification for the BoJ to stay an easy central bank outlier, even though they face the inflation impetus of a modest further depreciation of the yen within the next few months. Having less any more Fed tightening in 2023 should start to see the yen recover some lost ground next year.

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