JPY: BoJ surprise hike doesn't cause JPY rally – ING

The Bank of Japan raised interest rates to 0.25% today, in line with our call but against consensus and market pricing. The BoJ also announced bond purchases will be nearly halved to around JPY 3tn by 1Q26, ING’s FX analyst Francesco Pesole notes.

JPY isn’t rallying for some reason

“The statement also stressed the inflationary risks of higher import prices, where the impact of a weak currency is greater. This surprise hike does fall into a generalized effort to stabilize the yen, in our view. USD/JPY swung after the release, and an attempted break lower was halted around the 151.6 (200-DMA support). The pair quickly bounced back and currently trades at 153.0, marginally above the pre-announcement levels.

“The lack of a post-announcement JPY rally must be associated with some lingering structural positioning in the yen, as speculators might have seen the rate hike as a near-term peak for the yen, and as an opportunity to re-enter carry-attractive trades below 152. Incidentally, consensus was probably in favor of a larger decrease in bond purchases, which have a bigger say on how far JGB yields can rise.

“Beyond the short-term, JPY looks on more solid ground, although watch for some JPY selling later today once FX intervention figures are released by the Ministry of Finance: an elevated figure could ignite speculation that the intervention strategy is unsustainable. The US events should determine the direction for USD/JPY near term, and we think that a retest of sub-152 levels remains possible.”