Japanese Yen: Recovery needs faster BoJ normalisation – OCBC
OCBC’s Sim Moh Siong and Christopher Wong note that September Bank of Japan (BoJ) hike expectations have risen sharply, but the Japanese Yen (JPY) has reacted only modestly.
OCBC analysts Sim Moh Siong and Christopher Wong highlight that recent Bank of Japan (BoJ) hike expectations have surged, yet the Japanese Yen (JPY) has only shown a slight reaction. They suggest that a significant JPY recovery would need a more decisive commitment to a quicker normalization of policy. Intervention risks currently limit USD/JPY near 160, while the Swiss Franc (CHF) remains the preferable currency for carry trades.
The article notes that while there is growing alignment between the BoJ and the government in addressing inflation and supporting JPY intervention, the JPY's response has been relatively moderate. Should the BoJ raise rates again in September, it would be its third increase in nine months, marking the most rapid policy tightening period since Japan's asset bubble burst in 1989.
However, the extent of government support for further rate hikes beyond September or October is uncertain. For a more substantial and sustained JPY recovery, a clearer message from the BoJ that policy normalization can proceed at a faster rate is needed. Currently, intervention risks are expected to keep USD/JPY near 160, with the CHF being the preferred funding currency for carry trades.
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