USD/JPY rallied by roughly 0.8% to 151.60. Unverified sources signal that Bank of Japan (BOJ) officials are of the view there’s no urgency to hike the benchmark rate next week. Interest rate futures quickly slashed BOJ October rate hike bets from 25% to under 10%, BBH FX analysts report.

BOJ signals no rush to hike

"We anticipate the Bank of Japan to resume normalizing rates at the October 30 meeting which can turbocharge JPY. Japan’s Tankan business survey points to an ongoing recovery in real GDP growth and underlying inflation is making good progress towards the BOJ’s 2% target. Japan’s September CPI print is due Thursday."

"Sanae Takaichi has won the vote to become Japan's prime minister. Takaichi will face significant constraints to push ahead with her fiscally profligate pledges as her coalition government does not have majorities in both houses of parliament. Satsuki Katayama has been named finance minister. In an interview with Reuters in March, Katayama, a former economic revitalization minister and finance ministry bureaucrat, said Japan’s economic fundamentals suggest the real value of USD/JPY is closer to 120.00-130.00."

"Our fundamental equilibrium model for USD/JPY (based on relative prices, terms of trade, net international investment position, and productivity) is much lower at 95.00. However, USD/JPY overvaluation is justified by wide US-Japan real long-term interest rate differentials."