Japanese Yen: BoJ hike underwhelms as yields drive JPY against US Dollar – OCBC

OCBC’s Christopher Wong notes that the Japanese Yen (JPY) weakened after the BoJ’s 25 bp hike to 1.25% as limited guidance on further normalisation disappointed hawkish expectations. Wong highlights that USD/JPY remains driven by UST–JGB spreads and thin liquidity, with resistance around 158–159 and support near 155–153, while firmer inflation, wages and intervention risks could cap Yen downside.

BoJ’s cautious tone tempers Yen support

"JPY weakened after the BoJ raised its policy rate by 25bp to 1.25%, its highest in over 3 decades. The hike was widely expected, but the 7–2 vote and relatively limited guidance on the pace of further normalisation disappointed expectations for a hawkish signal."

"At the press conference, Governor Ueda did signal a change in thinking, noting that with underlying inflation nearing 2%, policy is moving into a “new stage” where the focus is increasingly on keeping inflation around target and containing upside risks. He also did not rule out consecutive or larger hikes if conditions warrant."

"But there was little indication that the BoJ is in a hurry. Ueda stressed the need to avoid tightening financial conditions too quickly and pointed to next year’s shunto as an important gauge of whether wage-price dynamics remain intact. This does not necessarily mean that BoJ will wait until spring to move again, but it does suggest a high bar for a much faster pace of tightening."

"Near term, JPY may remain volatile, with UST-JGB yield differentials still an important driver while thin liquidity (due to JP hols on Mon – Wed) may exacerbate FX moves. Firmer domestic inflation and wage data, intervention risk or signs of repatriation flows could help limit JPY downside."

"USD/JPY last closed around 156.90 levels. Daily momentum is mild bullish while RSI rose. Rebound remains intact despite a hanging-man pattern in the preceding session, as the latest candle on Friday failed to provide bearish confirmation and instead saw renewed upside pressure. That said, some gains were retraced into the close,suggesting interim resistance is emerging around 156.70–157.00 (21 DMA)."

"Sustained break above this level may open room for the pair to attempt higher again. Next resistance at 158 (50% fibo retracement of 2026 low to high), 158.40 (100 DMA) and 159 (50 DMA). Support at 155 (23.6% fibo), 153 levels."

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