Key Moments
- USD/JPY is holding above the 155.00 level as markets await the Bank of Japan’s upcoming policy decision.
- Recent Fed rate cuts, soft U.S. payrolls, and expectations for a BoJ hike have not produced a significant yen rebound.
- MUFG expects the BoJ to maintain guidance for further gradual rate hikes, with a 25bps move already fully priced in.
Market Focus on BoJ as Yen Fails to Recover
USD/JPY is trading firmly above the 155 level, with support near 155.00 remaining intact as investors look ahead to the Bank of Japan’s policy announcement. According to MUFG FX analyst Lee Hardman, the yen has not managed to strengthen despite a combination of recent U.S. rate cuts and weaker nonfarm payrolls data, leaving near-term currency direction closely tied to how the BoJ communicates its policy outlook and path for any further gradual tightening.
Reaction Hinges on Guidance With 25bps Hike Priced In
Hardman notes that “USD/JPY has held up well over the past week, and has even moved further above support at around the 155.00-level overnight. The recent Fed rate cut, soft nonfarm payrolls report and building market expectations for the BoJ to raise rates tomorrow have failed to trigger a bigger rebound for the yen, even as US AI/tech stocks have come under renewed selling pressure over the past week.”
He cautions that “The unfavorable price action highlights the risk that the yen weakening trend, that has been in place since Takaichi won the LDP leadership election, could resume heading into year-end if the BoJ’s hawkish policy update disappoints expectations. A 25bps rate hike is already fully priced so the market reaction is more likely to be driven by the updated guidance delivered by Governor Ueda.”
Outlook for Gradual Tightening and Policy Risks
MUFG expects the central bank to reiterate that additional, measured rate increases remain likely. As Hardman explains, “We expect the BoJ to stick to guidance that further gradual rate hikes remain likely consistent with our forecast for another hike to be delivered by the middle of next year. However, plans for further gradual tightening may not be sufficient to reverse yen weakness while fiscal concerns remain elevated in Japan. If the yen continues to weaken it will increase pressure on Japan to intervene.”
Key Policy and Market Parameters
| Item | Detail |
|---|---|
| Current USD/JPY context | Trading above support at around 155.00 |
| BoJ rate move priced by markets | 25bps hike fully priced |
| MUFG policy outlook | Further gradual rate hikes likely, with another hike expected by the middle of next year |
| Main driver of market reaction | Updated policy guidance from Governor Ueda |
| Risk highlighted | Yen weakening trend could resume if BoJ update disappoints |
| Potential policy response | Continued yen weakness could increase pressure for intervention |
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