Today’s decision by the BoJ to hike its policy rate by 25 bps as expected has failed to support the JPY. Indeed, USD/JPY has pushed above the 157.00 level this morning marking its highest levels for almost a month. The price action in the JPY suggests that the rhetoric that accompanied today’s policy decision was less hawkish than the market had expected, Rabobank's FX analyst Jane Foley reports.

BoJ policy statement less hawkish than market expected

"The BoJ policy statement explicitly says that “if the outlook for economic activity and prices presented in the October Outlook Report will be realized, the Bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate and adjust the degree of monetary accommodation.” In view of the market reaction, it is likely that BoJ officials could attempt to strengthen the hawkish narrative over the coming weeks."

"We continue to expect USD/JPY to turn lower in 2026. However, market pricing now suggests that the majority of G10 central banks have likely completed their easing cycles and that some could be hiking rates by the end of next year. Failing a significant push back from the BoJ, the impact on interest rate differentials may strengthen the view that the JPY will remain an attractive funding currency for carry trades. Consequently we have raised our USD/JPY forecasts over the coming year."

"We continue to see the JPY as likely benefitting from higher rates and investment flows linked to the country’s move away from deflation and stock market reforms. However, fiscal concerns and the JPY’s perceived potential as a funding currency could limit any recovery. We have adjusted our USD/JPY forecasts and now see the currency pair at 145 on a 12-month view from 140 previously."