Hawkish Bank of Japan Signals Will Buoy Yen, Experts Say

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(Bloomberg) — The yen is poised for further gains after the Bank of Japan sent hawkish signals while raising interest rates, according to strategists.

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The upward revision of inflation expectations for fiscal year 2025 has given the central bank an opportunity to raise rates again this year. In line with market expectations, the BOJ raised its key policy rate on Friday to the highest level in 17 years.

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Here is a collection of comments from analysts and strategists:

Wee Khoon Chong, BNY’s senior APAC market strategist

The BOJ rate hike is supporting the yen and it is likely to continue strengthening from here. All eyes on Ueda’s next press conference. USD/JPY may see another leg down if Ueda sticks to a hawkish tone. Current technical support for USD/JPY is around 155.06.

Wei Liang Chang, strategist of DBS Bank Ltd.

The BOJ continues to raise interest rates as other central banks begin to taper. A narrowing of the short-term rate differential should boost the JPY in the short-term, even if today’s rise is widely expected. However, the BOJ’s slow pace of rate hikes, in addition to trade tensions from Trump, means USD/JPY could recover to 160 with a strong USD.

Alvin Tan, FX strategist at Royal Bank of Canada

Ueda sounded more confident about policy continuity, but remained reluctant to offer any timetable for the next rate hike. At the same time, the market is already pricing in another 25bp hike in H2 2025. Our view is that USD/JPY 162 from last year is the high of this cycle. We are neutral on JPY this year, we don’t see USD/JPY going beyond the 162 high from last year. I think another 25bp rate hike would be my first scenario, but the risks of a third hike this year are growing in my view.

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Charu Chanana, chief investment strategist at Saxo Markets

For the yen, we need to watch for a possible USD pivot with the bark of Trump tariffs proving stronger than bite, and the noise calls for lower tariffs. The yen has the potential to be a strong winner in the event of a USD pivot, clouding the outlook for Japanese exporters. Banks and other dividend plays in Japan remain interested in this rising interest rate environment.

Rieko Otsuka, strategist at MCP Asset Management Japan

Bank stocks are selling off profit-taking while the real estate sector appears to be a bearish buy as bad news is offset by rising prices.

Hidetoshi Ohashi, chief credit strategist at Mizuho Securities

If Japan’s final rate “changes more than market expectations, there may be a temporary suspension of corporate bond purchases or a softening of supply and demand.”

Yujiro Goto, head of FX strategy at Nomura Securities Co.

The first reaction was to sell the yen, but the yen is being bought again. The BOJ also maintained a statement that the current level of real interest rates is too low and will adjust the easing rate. The assumption is that the BOJ judges that there is still some distance to a neutral interest rate even after this rate hike. In a more direct way, the Bank of Japan does not consider 0.75% neutral, but rather a communication that raises expectations for a rate hike to the 1% level.

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Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken

Incremental revisions to inflation forecasts made it more difficult to maintain a negative outlook. Although the tone is more intense than previous press conferences, it doesn’t mean you’re talking to pedestrians and they’re going to back down. In fact, it could make the market price in a higher terminal rate of 1.00% this year, instead of 0.75%. Overall, we still expect USD/JPY to go to 150 by the end of 2025.

Richard Franulovich, head of FX Strategy, Westpac Banking Corp.

The BOJ as a whole, to me at least, is throwing itself on the more hawkish side with the CPI updates, and the continued signaling that upside risks remain and if forecasts come true, further corrections can be expected. It remains to be seen if Ueda delivers the same message.

Sean Callow, senior analyst at Intouch Capital Markets

The BOJ’s decision is taken at the end of expectations. The language of this statement about the monetary policy outlook makes it clear that their working view is that inflation will continue. Forecasts have been eye-catching, with the BOJ’s inflation target now expected to be 2% or higher through 2026. A close below the USD/JPY 154.95 50-DMA could trigger a run back to levels before the December Fed- BOJ meets with a double whammy.

Homin Lee, senior macro strategist at Lombard Odier

We will have to see how Ueda directs the markets at this afternoon’s press conference, but we believe the BOJ will move to a somewhat higher rate above the 0.5% limit we previously viewed as a key hurdle. We think the BOJ’s policy easing and Japan’s strong fundamentals will push USD/JPY to around 160 and ultimately set the stage for a modest appreciation of the yen against the US dollar over the next 12 months.

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