[MARKET ANALYSIS] Kiwi continues to outperform as domestic banks shift rate calls; JPY helped modestly by reports BoJ to increase price forecast

NZD stays the best performer in the G10FX space as markets price in further bps of hikes from the RBNZ. Overnight, ANZ revised its rate outlook for the RBNZ, now forecasting hikes in July, September and October. This follows moves from other domestic banks, ASB expecting the OCR to rise in September and December to a terminal of 3.25% next year (Terminal consensus), mid next year. ANZ Chief Economist Zollner said it is fair to interpret the recent media appearances from Governor Breman as deliberate. As a reminder, Breman conveyed hawkish marks a few times last week. Elsewhere in the ANZ note, Zollner said we don't have a strong view on July versus September. But we do have a pretty strong view that hikes will come before our previous call of December.
JPY continues to be bound within 158-160 parameters. On Monday, remarks from BoJ Governor Ueda saw markets trim expectations of a hike in April's meeting, with the Japanese curve implying 4bp of hikes (prev. c. 15bp). As such, the haven remains in lockstep with a slightly weaker USD (DXY -0.2%).
There was a Bloomberg source that just hit the wires, which suggested BoJ was considering a sharp increase to its price forecast this month, while weighing a possible growth outlook cut due to high oil prices. This report pushed USD/JPY lower by around 10 pips to mark a session low of 158.91
MUFG, in Tuesday morning's note, said "While the comments do not explicitly rule out another hike as early as this month, we acknowledge that there a higher probability now that the BoJ will wait a little longer to assess the economic fallout from the Middle East conflict before tightening policy further." However they caveat this by saying delaying the timing of the next hike leaves JPY vulnerable to further weakness which could in turn lead to upside inflation risks from energy prices.