Rabobank’s FX Strategy team notes that USD/JPY is little changed after the latest BoJ meeting, with markets more focused on the upcoming Fed decision and new Fed President Warsh. The BoJ raised its policy rate to 1% and adjusted its JGB purchase plans, but implied rates still price limited tightening. Rabobank expects further BoJ policy signals to support the Japanese Yen and a lower USD/JPY over a three‑month horizon.

BoJ tightening, Fed focus and Yen outlook

"While no policy change is expected from the Fed for a while, any hints from Warsh tomorrow regarding his favoured communication methods and policy frameworks may provide fresh direction for USD/JPY."

"This means that if there were a rapid rise in long term interest rates, the BoJ could increase the amount of JGBs it purchases."

"Implied market rates indicate only another 15 bp of tightening is priced in on a 6-month view."

"This suggests that there is scope for the BoJ to signal support for the JPY if it can accelerate the pace of policy tightening."

"Our forecast of a move back to USD/JPY on a 3-month view assumes the BoJ signals further policy tightening is likely to be forthcoming before the end of the year."

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