Yen shorts could be the final nudge for Bank of Japan to hike rates

Net shorts in the Japanese yen have recently expanded and that could convince the Bank of Japan that now is the right time to hike rates, according to MUFG.

“We still believe that the BoJ is setting the stage for an exit from negative rates which could come as early as at the next meeting in March,” they write.

They note that 2-year Japanese yields are up to +0.18%, which is the highest since 2011.

“An earlier hike could help to reduce risk of JPY weakening further in the current environment which is encouraging the establishment of yen-funded carry trades,” MUFG writes.

USD/JPY is down 24 pips today, in part due to Japanese core CPI at 2.0% y/y versus 1.8% expected. The Bank of Japan has flagged spring wage negotiations as a critical input in deciding on when to hike so we will await news on that as well.

Upcoming BOJ meetings:

  • March 19
  • April 26
  • June 14

The market has fully priced in 10 bps in hikes for the June meeting.

This article was written by Adam Button at Source