Lee Hardman at MUFG observes that the Japanese Yen remains under pressure as USD/JPY trades back above 160.00, with markets almost fully pricing a BoJ rate hike at the June 16 meeting. A Nikkei report suggests the BoJ may lift its key rate to 1.00% and pause JGB tapering from FY2027, leaving MUFG expecting the Yen to stay weak near term.

BoJ tightening plans and Yen weakness

"The yen has continued to trade on a weaker footing at the start of this week after USD/JPY rose back above the 160.00-level."

"A BoJ rate hike at the upcoming policy meeting on 16th June is almost fully priced in now so is unlikely to trigger a significant reversal of yen weakness on its own if delivered."

"Failure to follow through and hike rates again would trigger a much bigger negative market reaction for the yen adding to investor concerns that the BoJ is behind the curve in fighting inflation risks in Japan."

"A Nikkei report released overnight stated that they have learned that the BoJ is set to raise its key interest rate to 1.00%, and is also considering pausing the tapering of its government bond purchasing program starting in April 2027."

"Overall, the latest developments have not changed our view that the yen is likely to remain weak in the near-term until the worst of the energy price shock begins to fade."

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