Rabobank’s Senior FX Strategist Jane Foley discusses Japanese Yen (JPY) dynamics around upcoming G10 central bank meetings and potential Bank of Japan policy shifts. Foley notes Governor Ueda’s hawkish tone, ongoing BoJ tightening expectations despite higher energy costs. Rabobank recently raised its USD/JPY forecasts, anticipates the pair trading around current levels on a one‑month view, and sees fear of intervention limiting tests of the 160 level in coming weeks.

BoJ tightening risks and JPY headwinds

"We expect the USD to remain well supported in view of uncertainties connected the Middle East conflict. This suggests that while the JPY may draw some support from a continuation of hawkish rhetoric from Governor Ueda this week, we would not expect any dips in USD/JPY to extend far. Last week we raised our USD/JPY forecasts out to 6 months and see the currency pair around current levels on a 1 month view."

"The BoJ has been gradually tightening policy since March 2024 when it lifted its policy rates out of negative territory and announced the start of a shift away from QQE. As it stands, however, monetary policy conditions remain extremely accommodative as noted by the level of real interest rates. Indications that this spring’s wage talks for unionised workers will bring another strong outcome have encouraged the view that consumption and corporate profitability will find support."

"It is against this backdrop, that economists’ surveys suggest that the BoJ is likely to continue hiking interest rates in H1 this year, despite the headwinds to growth suggested by higher imported energy prices."

"That said, the weakness of the JPY will still be having an undesirable impact on import prices. Finance Minister Katayama yesterday increased verbal intervention against JPY weakness. The timing of this fell just ahead of this week’s visit by PM Takaichi to the White House."

"For now fear of intervention is likely to make the market nervous of testing the USD/JPY 160 level. That said, in view of the current strength of the USD, the BoJ will likely have to keep speculation of an April rate hike alive this week to prevent a near-term test of this level."

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