Japanese Yen: BoJ’s hawkish pivot reshapes outlook against US Dollar - Standard Chartered

Standard Chartered strategists have revised its Bank of Japan (BoJ) rate outlook, bringing forward its expected 25bps hike from October to September and raising its terminal rate forecast to 1.75% from 1.50% previously. They expect two additional hikes in 2027, while noting that FX intervention risks remain as USD/JPY trades near 160. Despite the recent pullback toward 159, they maintain their USD/JPY targets at 158 by end-Q3 and 160 by end-Q4.

BoJ hiking path reshaped

"We now expect the Bank of Japan (BoJ) to hike by 25bps on 18 September from October previously."

"We now expect two more 25bps hikes after September, in Q1- and Q3-2027, from 25bps hikes in October and Q2-2027."

"As a result, we expect a higher terminal rate of 1.75% in this rate-hike cycle from 1.5% previously."

"We now see 25bps hikes in September (vs October prior), and in Q1- and Q3-2027 (vs only in Q2-2027 prior) Our revised expectation implies an additional 25bps hike this cycle, to a terminal rate of 1.75% (1.5% prior) We see earlier and more rate hikes, but at a gradual pace given slow growth and a higher fiscal burden."

"We doubt the BoJ can ‘out-hawk’ the market, which is pricing in a terminal rate of c.2.0% by end-2027."

"We do not rule out further FX intervention in the interim as USD/JPY trades close to 160; we still see USD/JPY at 158 by end-Q3 and 160 by end-Q4 as yield-insensitive capital outflows weigh on the JPY."