Brown Brothers Harriman’s (BBH) Elias Haddad reports USD/JPY has moved above 159.00 on broad US Dollar (USD) strength but is expected to stay below 160.00 given intervention risks. Stronger-than-expected Japan Q1 Gross Domestic Product (GDP) and firm nominal growth support tighter Bank of Japan (BoJ) policy expectations, with markets pricing a high probability of a June rate hike as upcoming Consumer Price Index (CPI) data becomes pivotal.

BoJ hike odds rise on robust data

"USD/JPY is up above 159.00 on USD strength but should hold under 160.00 due to threat of currency intervention. Japan Q1 real GDP growth overshoots expectations and argues for tighter BoJ policy. The economy expanded by 0.5% q/q (consensus: 0.4%) vs. 0.2% in Q4 (revised down from 0.3%) driven largely by net exports (+0.3ppt). Inventory destocking was the only drag to growth (-0.1ppt). "

"The swaps market still price-in about 75% odds of a 25bps Bank of Japan (BoJ) rate hike to 1.00% at the June 16 meeting. Japan’s April CPI print on Friday should settle the debate around a June BoJ move. "

"On a side note, Japan’s firmer growth backdrop improves the country’s fiscal credibility. Japan nominal GDP growth of 4.0% y/y in Q1 vs. 3.7% in Q4 remains above 10-year JGB yields of 2.78%, easing concerns about debt sustainability. "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)