USD/JPY pulls back after briefly breaching 145.00 as BOJ reaffirms caution – Société Générale

USD/JPY briefly breached the psychologically significant 145.00 level before pulling back, as dovish remarks from BOJ Governor Ueda reinforced market expectations for a slow and cautious policy normalization. Despite some inflation gauges exceeding BOJ projections, underlying inflation remains subdued, limiting the urgency for rate hikes, Société Générale's FX analysts note.

BOJ’s Ueda sees no rush to tighten

"USD/JPY edged up briefly above 145.00 before retracing part of its gains. Bank of Japan (BOJ) Governor Kazuo Ueda signaled there was no rush for the bank to resume tightening policy because underlying inflation remains below 2%. Ueda is referring to CPI (all items less food and energy) which has remained more or less flat, between 1.5% y/y and 1.6% y/y this year (chart below)."

"In contrast, CPI (all items less fresh food and energy) increased to 3% y/y in April and is tracking above the BOJ’s 2025 forecast of 2.3%. Regardless, the swaps market still implies only 50bps of BOJ rate hikes over the next two years and the policy rate to peak at 1.00%. The BOJ’s cautious normalization cycle is an ongoing headwind for JPY."