JPY: Neutral rate debate supports gradual gains – Commerzbank

Commerzbank’s Volkmar Baur expects the Bank of Japan (BoJ) to deliver two further rate hikes in 2026, taking policy closer to a rising neutral rate and supporting a modest Japanese Yen appreciation versus Dollar (USD) and Euro (EUR) in the second half of the year. He also projects USD/JPY and EUR/JPY to edge lower from current levels into late 2026 and 2027.

BoJ tightening seen lifting Japanese Yen

"The current policy rate of 0.75% is therefore still below even the lowest estimate of the neutral interest rate."

"All in all, one can therefore say that financial conditions remain stimulative, which would support the assessment that the key interest rate has not yet reached a neutral level."

"This supports our view that the Bank of Japan will raise interest rates two more times this year."

"The pricing out of these expectations in the US and Europe should therefore cause the Japanese yen to appreciate against the USD and the euro in the second half of the year."

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