USD/JPY caught a breather on Thursday, now stabilising slightly above 154.0, ING’s FX strategist Francesco Pesole notes.

BoJ is set to hike rates by 15bp next week

“The size of JPY short positions and the risk-off mood in the market mean there is probably more room for a rebound in the Japanese Yen (JPY) before this adjustment can be complete. In our view, markets are also underestimating the chances of a 15bp Bank of Japan (BoJ) hike next week.” 

“Tokyo consumer price data showed that headline inflation edged down to 2.2% YoY in July (vs 2.3% in June, market consensus), but the BoJ’s preferred measure, core inflation excluding fresh food, rose to 2.2% in July (vs 2.1% in June, 2.2% market consensus).”

“We believe that inflationary pressure in services continues to build. It is a close call, but we maintain our view that the BoJ will hike rates by 15bp and reduce its bond-buying programme at the same time.”