USD/JPY remains capped under its recent double-top near 158.90, despite the Bank of Japan (BOJ) reiterating a hawkish stance. Governor Ueda confirmed that rates will rise as economic conditions improve, with the policy rate still below the neutral range of 1–2.5%. Market pricing for BOJ hikes versus Fed easing suggests the pair could move lower toward 140 over the next year, BBH FX analysts report.

Governor Ueda signals further rate hikes possible

"USD/JPY is holding under its recent double-top around 158.90. Bank of Japan (BOJ) Governor Kazuo Ueda reiterates the bank’s hawkish bias. Ueda said 'We will keep raising rates in line with improvement in the economy and inflation.' The BOJ has room to increase rates as the policy rate (0.75%) is still below the bank’s estimate of the neutral range between 1% and 2.5%."

"The swaps curve is betting on nearly 50bps of BOJ rate hikes in the next twelve months, in sharp contrast to the 75bps of easing priced for the Fed. As such, USD/JPY has scope to converge with one-year implied policy rate differentials and trade closer to 140.00."