BUZZ-COMMENT-Yen crosses may be pressured by expected BOJ hike

A potential Bank of Japan rate hike on Friday could pressure yen crosses.

Ahead of the policy decision, USD/JPY starts 2025 slightly below the 157 level seen on Jan. 1 and not far from the 155 level seen just before the BOJ’s rate hike last July. EUR/JPY remains largely unchanged year-to-date.

Expectations of tighter policy have provided some support to the yen in January, despite other factors weighing on the currency, such as continued Japanese outward investment, stock market gains reducing haven demand, and potential U.S. tariff threats.

OIS is pricing in a near-certain BOJ hike to 0.50% on Friday, with a further increase to 0.75% expected later in 2025 as officials slowly tighten policy.

While dovish rhetoric from BOJ Governor Ueda is likely on Friday, the conversation around the weak yen’s effect on inflation and rising asset prices may become more prominent if spring wage negotiations play out as expected, since they’re a key policy driver. Such a shift may curb expected USD/JPY gains.

In contrast, the Federal Reserve and European Central Bank are in the midst of easing cycles. The market expects the ECB’s policy rate to be around 2% in December, following a new round of dovish guidance this week. Rate cut expectations have supported equity markets and weighed on yen volatility.

The options market sees a relatively calm yen post-BOJ rate decision. This stability, along with higher BOJ policy rates, should undermine yen crosses as funding carry positions continue to be adjusted. For USD/JPY, any move outside the 155 to 158 range will provide a clearer directional signal.

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