USD/JPY: Range-bound view on BOJ caution – BBH

Brown Brothers Harriman’s Elias Haddad notes USD/JPY has surged to its 200-day moving average on broad Dollar strength, but expects the pair to trade within a 155.00–160.00 range near term. Japan’s Q3 Tankan and the Bank of Japan's (BOJ) Summary of Opinions suggest a high bar for faster tightening, with hawkish direction but cautious pace limiting upside for Japanese Yen.

High bar for faster BOJ tightening

"USD/JPY surged to its 200-day moving average at 158.49 on broad USD strength. We expect USD/JPY to hold within a 155.00-160.00 range in the near term."

"Japan’s Q3 Tankan survey and the BOJ’s September meeting Summary of Opinions suggests the bar for the BOJ to speed up its tightening cycle remains high. The Tankan all industries business conditions index improved to a 35-year high of 21 vs.18 in Q2, though businesses expect it to ease to 15 in Q4 and inflation expectations were broadly steady."

"Meanwhile, the Summary of Opinions was hawkish on direction but generally cautious on the pace. The Cabinet Office urging BOJ policymakers “to examine carefully the cumulative effects of past policy interest rate hikes” adds resistance to a faster hiking cycle."