Mitsubishi UFJ Asset Management says the Bank of Japan (BOJ) may need a larger, or even out-of-cycle, rate increase to prevent further declines in the yen and Japanese government bonds. The firm warns that a rate hike expected to be delivered this month may not be sufficient to change the broader direction of currency and bond moves. According to the view cited by the outlets, if the BOJ’s planned adjustment is smaller than what markets need, downward pressure on the yen could continue and yields on government bonds could move in a way that reflects reduced expectations for tighter monetary policy.
The commentary leaves open the possibility that the BOJ could opt for a “jumbo” hike—either by raising rates by more than currently anticipated or by acting outside its regular schedule. The message centers on the effectiveness of the BOJ’s next step, rather than making a definitive call on timing or the size of any eventual increase.
