Vanguard expects hawkish BOJ

The number of institutions expecting more interest rate hikes from the Bank of Japan (BOJ), which has not been able to stop the bleeding of the yen despite moving into positive interest rate territory in March, is increasing. Vanguard has joined bond giant Pimco, which has deviated from market expectations by expecting three interest rate hikes this year. Ales Koutny, head of Vanguard’s international bond desk, said they expect the BOJ policy rate to be raised from 0%-0.1% to 0.75% this year. According to Koutny, the markets are underestimating the fact that the BOJ needs to be hawkish this year to protect the yen. Koutny, who gave an interview to Bloomberg, said that Japanese authorities would be uncomfortable with a dollar/yen exchange rate above 155, and said, “We find the markets’ pricing of the BOJ rate low. Despite all the noise about intervention last week, we are currently above 155. The only way out of this is for Japan to send a very hawkish message.” The yen has lost about 9 percent of its value against the dollar this year, with the exchange rate trading at 155.75 in the morning hours.