USD/JPY: Tight range as BoJ risk underpriced – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes USD/JPY is consolidating just below 160.00 after slightly hotter March Consumer Price Index (CPI) that leaves Bank of Japan (BoJ) expectations unchanged for now. With markets pricing near certainty of no move next week, Haddad argues investors underprice the risk of a hike given Japan’s positive output gap and robust wage gains.

Market complacent on BoJ tightening risk

"USD/JPY is trading in a tight range just under key resistance at 160.00. Japan March CPI came in slightly hotter than expected but does not shift the dial on Bank of Japan (BOJ) rate hike expectations."

"Headline CPI rose to 1.5% y/y (consensus: 1.4%) vs. 1.3% in February driven by petroleum-related items. Core CPI ex. fresh food printed at 1.8% y/y (consensus: 1.7%) vs. 1.6% in February, while core CPI ex. fresh food & energy CPI matched consensus at 2.4% y/y vs. 2.5% in February."

"The Bank of Japan’s (BoJ) set of underlying CPI indicators for March will be released just ahead of Tuesday’s policy rate decision. The swaps curve price in near certainty that the BoJ holds rates steady at 0.75% next week. In our view, the market is underpricing the risk of a rate hike given Japan’s positive output gap (0.45% in Q3 2025) and solid results from the latest spring wage talks."