The minutes of the Bank of Japan (BOJ) December meeting are outdated following last week’s 25bps policy rate hike to 0.50%, BBH FX strategists report.

BOJ policy rate to peak around 1.00%

“In December, the BOJ left the policy rate unchanged at 0.25% and the minutes showed the board discussed how high to raise the policy rate in the future. One member cautioned the BOJ ‘would need to slow the pace of policy interest rate hikes’ once the policy interest rate approached the neutral interest rate.”

“BOJ staff estimates the nominal neutral rate to be in a range of 1.00% to 2.50%. Markets continues to imply the BOJ policy rate to peak around 1.00% over the next two years. This seems about right as the BOJ expects inflation to stabilize around its 2% target in 2026. Bottom line: the BOJ shallow policy normalization cycle is an ongoing headwind for JPY.”