Japanese Yen: Yen supported by BoJ hike pricing – MUFG

MUFG’s Lee Hardman notes that the Japanese Yen (JPY) has strengthened as markets fully price a 25bps Bank of Japan (BoJ) rate hike at the 18th September meeting, helped by hawkish comments from Governor Ueda and board member Takata. However, rising Brent Oil prices and higher US yields continue to support the US Dollar (USD), limiting a broader reversal in USD/JPY.

BoJ expectations clash with US yields

"The yen has been one of the biggest movers overnight. After hitting a high of 160.39, USD/JPY has since dropped back below the 160.00-level. The yen has derived some support from hawkish comments from BoJ officials including Governor Ueda which have reinforced market expectations for the BoJ to hike rates again later this month."

"A 25bps rate hike at 18th September policy meeting is now fully priced in. BoJ rate hike expectations were encouraged by comments from BoJ Governor Ueda who told reporters after a meeting of G20 finance ministers and central bankers that “from the perspective of conducting policy with a risk management approach as the underlying inflation rate approaches 2%, we have to believe that we need to pay greater attention than before to upside risks in our policy conduct”."

"The comments provide the clearest signal yet that BoJ is preparing to hike rates again this month. At the same time, hawkish BoJ board member Hajime Takata has reiterated his call for the BoJ to hike rates after he voted for a hike at the last meeting in July."

"As a result, he believes that “2026 represents a regime change where rate hikes will not be carried out at a fixed pace but will instead be conducted in nimble and data-dependent manner”."

"The yen has remained under selling pressure over the past month undermined by the ongoing negative energy price shock for Japan."

"The ongoing hawkish repricing of BoJ rate hike expectations is a supportive development for the yen but it has not been sufficient yet to trigger a reversal of the yen weakening trend."