A still-weak JPY after the first rate hike should also motivate BoJ to hike further – Standard Chartered

The Japanese Yen (JPY) weakened on the same day as the BoJ’s rate hike. Economists at Standard Chartered note that the BoJ may draw confidence from observing the JPY’s movements.

The JPY’s current weakness is a double-edged sword

Achieving JPY appreciation vs. the USD would require a narrower interest rate gap between the US and Japan, which is partly dependent on Fed policy. 

The JPY’s current weakness is a double-edged sword. While it has significantly fueled Japan’s export growth and equity market performance, its weakness is adding to imported price pressures. To that end, the weak JPY may be a key consideration for the BoJ to tighten policy in the foreseeable future as it seeks to stabilise import prices and safeguard consumers’ purchasing power.