JPMorgan says the Bank of Japan faces an increasingly difficult policy loop:
rising yen depreciation pressure could force earlier rate hikes, but a September
move seen by markets as a direct response to the currency may encourage bets on
faster follow-ups and raise policy-expectation uncertainty. After June’s
tightening, a September hike would shorten the interval to three months, faster
than the previously signaled gradual, data-dependent pace. JPMorgan cautions
that if markets price a ‘weaker yen → BoJ hikes’ feedback, future tightening may
become market-driven, increasing the sensitivity of the yen and JGBs to
exchange-rate swings; it therefore expects policy adjustments in September and
December, advancing BoJ normalization.
