The Hike and The Hold

June 16, 2026

Elias Haddad

BOJ delivers 25bps hike to 1.00%, a 31-year high, and sticks to JGB tapering roadmap. USD/JPY reaction muted, JGBs underperform.

RBA pauses tightening to assess the data. AUD modestly lower.

USD struggling to gain upside traction. Risks still favor further gains.

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Markets continue to build on the optimism sparked by the US-Iran peace agreement. Crude oil prices extended their decline, European equities added to yesterday’s gains, and bond yields moved lower across most major markets. The notable exception was Japan, where JGB yields moved higher, while S&P500 futures are largely flat.

The dollar index (DXY) is trading on the defensive just below the top of its 96.00-100.00 range that has held for more than a year. We see scope for DXY to overshoot that range in the coming months. US-G6 two-year bond yields are consistent with DXY trading closer to 102.00 and US economic outperformance should keep rate differentials supportive of the dollar

US economic data on deck today: ADP employment change for the week ending May 30, May import and export price indexes, June New York Fed services business activity, May housing starts and building permits.

JAPAN

Market reaction to the BOJ (Bank of Japan) policy decision was relatively subdued. USD/JPY traded in a 10 pip range around 160.20 and the TOPIX is up around 0.5%. 10-year JGBs underperformed across the board, with yields rising as much as 6bps.

As was widely expected, the BOJ delivered a 25bps rate increase to 1.00%, ending a hold streak that began after its December rate hike. Only one policymaker dissented, Asada Toichiro voted to keep rates on hold.

The BOJ maintained its tightening bias. The BOJ reiterated it will “continue to raise the policy interest rate” noting upside risk to underlying inflation and its encouraging economic growth outlook. The swaps curve price in 75% odds the BOJ hikes by a total of 50bps in the next twelve months. The bar for a more aggressive BOJ tightening path is high because almost all underlying CPI indicators eased further below 2% in April.

The BOJ maintained its JGB tapering plan but indicated that bond buying will stop declining from April 2027. JGB purchases will be reduced by about ¥200 billion per quarter through Q1 2027, bringing total monthly purchases down to ¥2.1 trillion. From April 2027 onwards, the amount of its monthly JGB purchases will total about ¥2 trillion. At the same time, the BOJ reiterated that it could step up purchases at short notice if long-term yields rise too rapidly.

Bottom line: The slump in crude oil prices takes some pressure off JPY and could help nudge USD/JPY lower to 155.00.

AUSTRALIA

AUD/USD retraced some of yesterday’s US-Iran peace agreement rally. As was widely expected, the RBA left the policy rate unchanged at 4.35% after delivering three consecutive 25bps hikes since February. The policy decision was unanimous, and a rate hike was not considered.

The RBA reaffirmed its data-dependent pause. The RBA stressed it wants to assess “the response to previous interest rate rises and the impact of the oil supply disruption.” The RBA added that “financial conditions are now tighter than they were, and there are signs that the economy is slowing as expected. But inflation is still too high.”

However, the RBA did not rule out “increasing the cash rate target further if required.” RBA cash rate futures imply 50% odds of one final 25bps hike by year end to 4.60%. We would fade the risk of another hike this year. Australia real Q1 GDP pointed to sluggish underlying demand activity and the April labor force report was poor. Moreover, business and consumer sentiment indexes are consistent with a softer growth outlook.

Bottom line: Australia-US 2-year bond yield spreads suggests AUD/USD can undershoot 0.7000 in the near-term.

CHINA

USD/CNH is trading heavy near a multi-year low around 6.7600. China’s May real sector activity was weak and largely in line with expectations. In the first five months of the year, retail sales growth slowed to 1.4% y/y vs. 1.9% in April, industrial production growth eased to 5.4% y/y vs. 5.6% in April, and fixed asset investment growth slumped -4.1% y/y (consensus: -2.3%) vs. -1.6% in April. Excluding real estate development, fixed asset investment growth fell -1.2% y/y vs. 1.3% in March.

Regardless, USD/CNH downtrend is intact in our view reflecting both CNH internationalization potential and China’s internal rebalancing story.

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