BoJ fails to meet hawkish market expectationsFX Daily Snapshot

Key arguments

• The bar was low for the BoJ to disappoint hawkish rate pricing, and the 25bp hike to 1.25% did exactly that, leaving the yen vulnerable.
• Removing the 'negative' real-rate description was merely the BoJ acknowledging a notable front-end rise (2yr JGB +35bp) with inflation below the 2% target.
• Ueda's hint that the 'stage for policy conduct has changed' implies a potentially altered tightening pace, though no particular pace is set.
• The BoE's QT overhaul helps contain long-end Gilt yields, capping the negative FX fallout from the pound's fall.

Corresponding source evidence

1. But the trigger for the initial yen sell-off following the announcement at 3:54 BST does likely simply reflect the fact that recent speculation, including talk of the potential for 50bp moves, was overdone.
2. This is really just the BoJ acknowledging facts –the move up in front-end rates has been notable (2yr JGB yield is 35bps higher since the last BoJ meeting) and with inflation currently below the 2.0% target the description of “low” rather than “negative” makes sense.
3. 30-YEAR GILT HAD BEEN OUTPERFORMING BEFORE YESTERDAY Source: Bloomberg, Macrobond, MUFG Research GBP: BoE surprises markets with updated QT plan There was only 2bps of hikes priced for the BoE announcement yesterday, so the unchanged policy announcement was no surprise.