As she embarks on her fiscal path to push forward with big stimulus and spending, Sanae Takaichi wants the BOJ to keep interest rates as they are for as long as possible. And that begins with the next decision in December. She has made it relatively clear in her not so subtle remarks including the ones today:
- Japan prime minister Takaichi: We cannot say that Japan has emerged from deflation
- Japan prime minister Takaichi: Appropriate monetary policy is very important
And despite some verbal intervention from Tokyo earlier here, USD/JPY continues to be on the rise with the pair starting to near the 155.00 level now.
In essence, there’s a big repricing going on now with regards to the Japan outlook. And that doesn’t just come with the fiscal repricing, but also the BOJ repricing. Even with the latest downdraft in the yen, markets are still showing roughly ~24% odds priced in for a rate cut by the BOJ for December. As such, there’s still more unwinding to do if Takaichi manages to get her way with it.
The bigger picture outlook might be more worrying though. It is that even with the BOJ perceived as possibly able to hike rates, they may not be too comfortable in staying on this path for an extended period so long as Takaichi remains in the premiership seat.
That just means that we could be faced with a situation where the yen continues to drop even as the BOJ hikes rates some time down the road. In simpler terms, it is basically to fade any yen strength and sell the currency on any spikes. That especially against the crosses.
This article was written by Justin Low at investinglive.com.