JPY: BoJ hikes, Yen shrugs – Commerzbank

The Bank of Japan (BoJ) raised rates to a 30-year high and signaled further hikes, but the yen weakened as markets judged the tightening path too slow to drive a near-term Japanese Yen (JPY) rebound, Commerzbank's FX analyst Volkmar Baur notes.

USD/JPY jumps above 156

"This morning, the BoJ raised its key interest rate to 0.75%, the highest level in 30 years. In addition, its statement makes it clear that the central bank intends to raise interest rates further if the economy develops as expected. However, this is not apparent when looking at the yen."

"USD/JPY actually rose above 156 following the interest rate decision, and market expectations for further interest rate hikes in the coming year have hardly changed. One cannot entirely blame the market. The announcement that interest rates would be raised further has been in the press release for a long time, and for 2025 this meant just two interest rate hikes, and these were 11 months apart."

"Therefore, it will take more for the JPY to regain some ground against the US dollar and it will take a combination of several factors to strengthen the JPY next year. Better economic momentum, together with a sustained normalization of inflation, as well as a central bank that is nevertheless willing to continue raising interest rates towards neutral. We expect all of this to happen in the coming year, accompanied by a stronger yen."