MUFG sees a growing case for the BoJ to raise rates again before year-end

This is via eFX:

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Synopsis: MUFG discusses the increasing likelihood of the Bank of Japan (BoJ) implementing another rate hike before the end of the year, driven by recent economic indicators and financial market performance.

Key Points:

• Yen Weakness and USD/JPY Levels: The Japanese yen has given back nearly 50% of the gains it achieved during the summer, leading USD/JPY to rise above the 150.00 level this week.

• Recovery in Japanese Equities: The Japanese equity market has fully recovered from summer losses, indicating improved financial stability risks, which could encourage the BoJ to maintain or accelerate its rate hike trajectory.

• Election Impact: Expectations for BoJ rate hikes may be advanced following the upcoming general election on October 27. This development could serve as a catalyst for further JPY appreciation later in the year.

• Geopolitical Considerations: However, any potential gains for the yen may be overshadowed if Donald Trump wins the US presidential election, which could result in higher US yields and strengthen the USD.

Conclusion: MUFG sees a growing case for the BoJ to raise rates again before the year ends, contingent on Japan's economic performance and post-election developments. The upcoming general election is critical, but external factors such as US political outcomes may influence the effectiveness of any JPY gains.

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