Japanese Yen: Weakness against US Dollar to persist despite hawkish BoJ – ING

ING’s Chris Turner reports that the Bank of Japan (BoJ) left rates at 1.25% while acknowledging its 2% inflation target has been met and highlighting upside price risks from energy, AI demand and a weak Japanese Yen (JPY). Markets expect the policy rate to reach around 2.00% next summer, and ING now looks for BoJ hikes in December and March/April, with USD/JPY staying near 155–160 before turning lower in 2Q.

BoJ seen hiking into next summer

"The Bank of Japan left the policy interest rate at 1.25% today and, for the first time, signalled that its 2% inflation target had been hit. Running through both the statement and the new Outlook report were three themes that the BoJ felt could all contribute to upside price risks: energy prices, AI demand and the weak yen. In that report, growth forecasts were left around 0.7-0.8% (near or above potential), while CPI forecasts were revised slightly higher."

"Markets are still debating whether the BoJ will hike next at the December or January meeting, but remain confident that the policy rate will be heading up to the 2.00% area next summer."

"The BoJ also gave a nod to rate hikes overseas and presumably will be aware of the risks of a weaker yen should it not track the Fed and ECB with a rate hike in December. We now think the BoJ will hike in December, with a likely follow-up in March/April."

"USD/JPY is a little lower today on this hawkish hold – although the dollar is a little lower across the board. We see it staying bid towards the top of a broad 155-160 range and then turning lower in 2Q next year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)