Rabobank’s Senior FX Strategist Jane Foley notes that Bank of Japan policy expectations have changed little versus other G10 central banks, with markets already pricing a gradual tightening path. She highlights political concerns around BoJ independence, new inflation indicators supporting further hikes, and ongoing intervention risks. Rabobank projects USD/JPY near 152.00 in six months, with downside potential over 3–6 months.

BoJ tightening, politics and safe haven flows

"While a hawkish BoJ will be instrumental if the JPY is to strengthen this year, the sharp re-pricing of rate hike risk for most other G10 countries in recent weeks is supportive of other G10 currencies. This will have complicated the task of supporting the JPY vs. a basket of G10 currencies, though the JPY has gained some ground vs. most of its peers this month with fear of FX intervention likely playing a part. Intervention risk has been ensuring the market remains wary of taking the currency pair above the USD/JPY160.00 level."

"The BoJ has now released more economic variables to clarify its hawkish thinking. Policymakers will likely be hoping that this will reduce concerns over the BoJ’s independence and help bolster the outlook for the JPY."

"On a 6-month view market implied policy rates for Japan are little changed, though the market is now priced for a moderately more aggressive pace of policy tightening beyond this point."

"Near-term, we expect safe haven USD demand to keep USD/JPY hovering around current levels. On Rabobank’s current assumption that crude oil and refined product flows through the Strait of Hormuz are likely to be around 80% of pre-war levels by August, we expect USD/JPY to be trading around 152.00 on a 6-month view."

"On the assumption that the BoJ continues to hike policy rates and that shipping through the Strait of Hormuz does start to return this spring with the effect of reducing safe haven USD demand, we see scope for USD/JPY to fall back on a 3-to-6-month view."

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