MUFG: USD/JPY Carry Index implies USD/JPY should be a lot lower - FJElite

The yen is the top performer again in G10 today with the pricing of BoJ rate hikes continuing to build in the aftermath of the speech by policy board member Hajime Takata when he hinted that the BoJ could decide to hike by a larger size than 25bps. The market has responded with 30bps of tightening now priced for the meeting this month. The year ahead pricing is now close to 100bps. While we see it as plausible that the BoJ could hike by that amount over 12mths we do not see it as likely at all that the BoJ will hike by a larger amount than 25bps. A hike this month will only just confirm a pick-up in the pace from every six months to every three months. There is still scope to pick-up the pace further if required before considering outsized moves. We even doubt we will get back-to-back moves but that’s more plausible.