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.
The Japanese Yen (JPY) experienced a weakening trend following the Bank of Japan (BoJ) raising its policy rate by 25 basis points (bp) to 1.25%, reaching its highest level in over three decades. Despite the expected hike, hawkish expectations were not met due to the limited guidance on further normalization provided by Governor Ueda.
The USD/JPY exchange rate is influenced by UST-JGB (United States Treasury-Japanese Government Bond) spreads and thin liquidity, with resistance around 158-159 and support near 155-153. Factors such as rising domestic inflation, wage growth, intervention risks, and the imminent shunto (a business day in Japan) could potentially limit the Yen's downside.
The BoJ stressed the importance of not tightening financial conditions too quickly and noted that further hikes would depend on the shunto and wage-price dynamics. Near-term volatility is expected due to the aforementioned factors, and a break above the 156.70-157.00 resistance level could allow the pair to attempt higher gains.
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