Japanese Yen strengthens vs USD on BoJ's hawkish pause; focus shifts Ueda's presser

The Japanese Yen (JPY) maintained its strength against major currencies, including the US Dollar (USD), following the Bank of Japan's (BoJ) cautious but firm tone at its October policy meeting. The USD/JPY exchange rate traded around 157.43, recovering slightly from its intraday low of 156.96. Despite the BoJ's decision to keep its policy rate at 1.25%, strategists at Brown Brothers Harriman emphasized the significance of the central bank's latest communication, noting that it has declared underlying CPI inflation consistent with its 2% target for the first time since adopting it in 2013.

This shift strengthens the case for additional rate hikes to keep inflation anchored. While the BoJ's growth revisions were minimal, it raised its 2027 inflation forecasts and remains concerned about upside risks to the economic outlook. However, there has been no material shift in BoJ rate expectations, with the markets still pricing in an 80% chance of a 25bps BoJ rate hike to 1.50% at the December 18 meeting and a near 75bps of tightening over the next twelve months.

Meanwhile, the US Dollar recovered after facing earlier pressure from a technology sell-off, which drove demand for government bonds and pushed Treasury yields lower. The US Dollar Index (DXY) rebounded toward 102.00, supported by expectations of further monetary tightening. St. Louis Fed President Alberto Musalem reaffirmed that the US central bank will raise rates again soon, emphasizing that gradual adjustments are preferable to sudden moves.