USD/JPY has had little pullback from the morning highs and remains bid around 120.47. A key factor seen behind USD/JPY support is the view that emerged in the Japanese press over Golden Week that JGB prices suggested that the BOJ will not raise rates until late this year, with only one more rate hike. However, there is speculation in a number of quarters that does not match this scenario.
A fund manager quoted by the IFR Markets JGB analyst in Tokyo suggests that the BOJ could hike as soon as next week's meeting, despite recent weak data. Other traders still see the chance of two BOJ rate hikes this year, and others see the likelihood that the Fed will actually hike this year on inflation concerns, giving the BOJ the window to hike rates as well. Upcoming data is not seen supporting any near term rate hike speculation however.
The latest coincident index was below the key boom-bust line for the third month in a row, and last night's Nikkei BOJ Watch column predicted that the April production data due on May 30, will be particularly week. However, the report does note that BOJ officials still remain upbeat on the economy.
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