Key Moments
- The Japanese yen weakened against the U.S. dollar even after BoJ Governor Ueda signaled a possible rate hike.
- Markets priced in about 20 basis points of tightening for the December 19 meeting following Ueda’s December 1 remarks.
- UBS raised its USD/JPY projections for the next nine months after the yen’s brief gains reversed back toward 156.00 per dollar.
BoJ Signals Potential December Rate Hike
Investing.com – The Japanese yen lost ground against the U.S. dollar this week despite comments from Bank of Japan (BoJ) Governor Kazuo Ueda that traders viewed as increasing the likelihood of a near-term rate increase.
In a December 1 speech, Governor Ueda delivered remarks that market participants interpreted as boosting the chances of a 25 basis point hike at the BoJ’s December 19 policy meeting. In response, interest rate markets moved to price in roughly 20 basis points of tightening for that date.
Yen’s Initial Rally Quickly Unwinds
The yen initially strengthened by nearly 1% against the dollar on the back of Ueda’s comments. However, that move did not last. The currency soon gave up those gains, and the USD/JPY pair drifted back to around 156.00.
According to UBS, the swift reversal in the exchange rate indicates robust underlying demand for the U.S. dollar relative to the yen.
| Event | Market Reaction |
|---|---|
| Ueda’s December 1 speech | Markets price in about 20 bps of tightening for December 19 |
| Immediate FX move | Yen strengthens nearly 1% vs. dollar |
| Subsequent FX move | USD/JPY returns to roughly 156.00 |
UBS Adjusts USD/JPY Outlook
UBS economists had already incorporated a 25 basis point BoJ rate hike into their December projections before Ueda’s latest remarks. The fact that the yen’s rally faded so quickly after a perceived rise in tightening odds led UBS to revise its outlook on the currency pair.
In light of the price action, UBS has raised its USD/JPY forecasts for the coming nine months, reflecting the currency’s inability to sustain strength even under heightened expectations for a BoJ rate increase.
Questions Around Yen’s Sensitivity to BoJ Policy
The recent market response is prompting investors to consider how the yen might trade if the BoJ ultimately decides not to raise rates at the December meeting. The currency’s failure to hold gains despite growing anticipation of a hike is fueling debate over how much support any policy move can realistically provide to the yen.
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