BoJ

Indecision continues to be a defining feature of the yen's recent price action. This can be seen in USD/JPY, which has posted average fluctuations of just 0.4% over the last three trading sessions, failing to establish a clear direction and reinforcing an increasingly evident neutral bias.

The year-end tug-of-war is clear: hawkish Fed pricing supports USD/JPY, while intervention risk limits the upside.

The Japanese yen continues to face challenging conditions in the short term. By the end of the week, USD/JPY had gained nearly 2.00% over the previous five trading sessions, highlighting ongoing weakness in the yen and showing that the U.S. dollar continues to gain ground.

A divided BOJ hike has left the yen under pressure and Nikkei bid, with Ueda now needing to convince markets that another two-and-a-half hikes by mid-2027 are justified.

The usual USD/JPY rates relationship broke down sharply earlier this month, but with speculative shorts flushed out and Japan’s curve re-steepening, the pair heads into the Fed and BOJ with far more two-way risk.

Central bank decisions will dominate the calendar, but with both hikes largely expected, energy prices, US yields and lingering threat of intervention could prove just as important.

A rare surge in US-Japan yield spreads has failed to lift USD/JPY, but with bond yields still rising and the pair printing a bullish engulfing candle, reversal risk is rising.

Intervention innuendo, confused Fed messaging and a hawkish BOJ repricing drove a violent move lower in USD/JPY last week. Strong payrolls stopped the slide, leaving this week’s inflation data to determine whether the rebound sticks.

USD/JPY has broken sharply lower as intervention suspicions rise and Fed hike bets are pared. With payrolls due later, the next leg could be even more violent.

A significant shift has begun to emerge around the strength of the Japanese yen in the short term. Over the last two trading sessions, USD/JPY has declined by nearly 1.00%, reflecting a notable recovery in the Japanese currency.

USD/JPY has turned lower as the market starts taking seriously the risk of faster BOJ rate hikes, with Takata’s comments closely echoing those from US Treasury Secretary Scott Bessent over the weekend.

Markets are now pricing a faster BOJ rate hiking cycle, but the JGB curve isn’t behaving the way you’d normally expect.