On the rate front, we expect the BOJ to leave the policy rate unchanged at its 30–31 July Monetary Policy Meeting (MPM). It just recently hiked interest rates in June, and we expect it to adopt a wait-and-see stance at the July MPM while keeping a close eye on the impact of rate hikes to date. We might see two dissents for a rate hike from Board members Hajime Takata and Naoki Tamura. We expect the BOJ to lower its CPI inflation outlook and raise its GDP growth outlook in view of the situation in the Middle East. However, we do not expect the BOJ to change its assessment that the distribution of risks to prices is skewed to the upside. In governor's Ueda press conference, we will be looking for his comment's on BOJ's independence. We expect upward pressure on prices from summer & ongoing rate hikes. Even annual wage negotiations have produced large hikes, including for SMEs. BOJ has been slow in responding to consistently high inflation in Japan. In addition, the fiscal stimulus of current Takaichi administration adds fuel to the fire of higher bond yields and depreciating JPY. We now see JPY staying elevated in 162-165 range if there is no intervention by MoF. We see a terminal rate of 1.5% by H1CY27 against the current policy rate of 1%. We have been bearish on JPY for past few months and remain of the view that without rate hikes being frontloaded, JPY has no saviour.
