Please download PDF for the full content

BOJ Policy Outlook & USD/JPY

• Some key BoJ speeches in May point to increased confidence in the strengthening of the "virtuous cycle" between wages and prices with changes in the labour market at the heart of the change
• We expect the BoJ tomorrow to announce a slowdown in the pace of purchases of JGBs from the current pace of close to JPY 6trn
• We continue to expect a 15bp rate hike at the July meeting
• The JGB 10-year yield looks priced for a change and the decision along with our US views point to a notable narrowing of the US-JP 10-year spread that will result in an eventual decline in USD/JPY
• The flows for the yen are turning more favourable and higher yields in Japan will raise expectations of increased repatriation flows