Key Moments
- OCBC highlights that dovish Bank of Japan nominations have intensified concerns over delayed policy normalization, adding pressure on the Japanese Yen despite its fundamental undervaluation.
- The bank flags a higher risk of official intervention if USD/JPY moves back toward the 160 level.
- OCBC maintains a neutral stance on the Yen and keeps its end-2026 USD/JPY projection at 149, based on expectations for only two BoJ rate hikes this year.
Policy Signals and Market Reaction
OCBC strategists Sim Moh Siong and Christopher Wong report that the nomination of policy board candidates with a historically dovish tilt at the Bank of Japan has reinforced market concerns that monetary policy normalization could continue to lag. This perception has weighed on the Japanese Yen, even though the currency is viewed as fundamentally undervalued.
The strategists point out that the Japanese government bond (JGB) curve has bear-steepened, a move they link to worries that the central bank might fall further behind the inflation and policy curve after Prime Minister Takaichi put forward these dovish-leaning nominees.
Undervaluation and Policy Perception
In their assessment, OCBC notes that both the Japanese Yen (JPY) and Chinese Yuan (CNY) are fundamentally undervalued. However, they emphasize that recent developments, including the Mainichi report and the Bank of Japan appointments, are reinforcing a dovish market perception of Japanese monetary policy. This, they argue, is constraining the Yen’s ability to benefit from its undervaluation.
Intervention Risk and FX Outlook
The bank highlights a potential return of currency intervention risk if the USD/JPY exchange rate moves back toward 160. At the same time, the strategists state that they are maintaining a neutral view on the Yen.
OCBC continues to project USD/JPY at 149 by the end of 2026. Their outlook is based on the view that the Yen is unlikely to shift from being primarily used as a funding currency to becoming an investment currency unless the Bank of Japan adopts a more hawkish stance than their baseline expectation of two rate hikes this year.
OCBC’s USD/JPY Positioning
| Aspect | OCBC View |
|---|---|
| Policy perception | Dovish-leaning BoJ nominees heighten concerns that normalization may lag |
| Currency valuation | JPY and CNY seen as fundamentally undervalued |
| Intervention risk level | Considered elevated if USD/JPY drifts back toward 160 |
| Stance on JPY | Neutral |
| End-2026 USD/JPY forecast | 149 |
| BoJ baseline policy assumption | Two rate hikes this year |
The strategists reiterate that a more assertive shift in Bank of Japan policy than currently assumed would be needed for the Yen to re-rate meaningfully from its role as a funding currency.
“The JPY slipped as the JGB curve bear-steepened, reflecting market worries that the BoJ could fall further behind the curve after PM Takaichi nominated two policy board candidates with notably past dovish leanings.”
“JPY and CNY remain fundamentally undervalued, but the recent Mainichi report and BoJ appointments reinforce a dovish perception, limiting the JPY’s ability to capitalise on its undervaluation.”
“Intervention risk would return quickly if USDJPY drifts back toward 160.”
“We remain neutral on the JPY.”
“Our end-2026 USDJPY forecast stays at 149, as the currency is unlikely to transition from a funding currency to an investment currency unless the BoJ turns more hawkish than our baseline outlook of two rate hikes this year.”
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
