As next week’s Bank of Japan (BoJ) meeting approaches, market sentiment remains focused on the central bank‘s potential rate hike. According to ING’s FX analyst, Chris Turner, the yen has strengthened amid growing speculation and concerns over possible foreign exchange intervention.
A Bloomberg report today indicated that several BoJ officials are leaning toward an interest rate hike, fueling optimism. ING’s Japan economist, Min Joo Kang, has long warned of the risk of such a hike, citing robust wage data. The current market consensus is now pricing in an 80% likelihood of a 25 basis point increase, which would lift the policy rate to 0.50%.
This growing expectation of a BoJ rate hike, combined with the fear of further intervention in the foreign exchange market, particularly in the 158/160 yen range, has bolstered the yen’s performance. Analysts predict this trend will continue leading up to the BoJ’s policy meeting next week.
However, Turner cautions that any dips in the yen are likely to be short-lived, with a floor expected between the 153/155 yen range. ING’s rates team projects that US Treasury yields will remain strong throughout the year, with the possibility of 10-year yields surpassing 5%. This environment could continue to support the dollar–yen exchange rate, particularly in the coming months.
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