Japanese Yen: Cautious BoJ tilt weighs on JPY against US Dollar – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad highlights pronounced Japanese Yen (JPY) underperformance, with USD/JPY near 158.00 after a Bank of Japan rate hike to 1.25%. The Bank of Japan (BoJ) signaled cautious tightening, expecting only moderate growth and delayed achievement of 2% inflation. BBH concedes its bearish USD/JPY view is wrong and flags key resistance at 158.42 and 160.00, where FX intervention risks rise.

Yen slump and BoJ caution

"JPY is underperforming across the board, with USD/JPY up nearly two big figures to 158.00. The Bank of Japan delivered on expectations but kept the bar high for a more hawkish stance. As was widely expected the BoJ raised the policy rate 25bps to 1.25% and reiterated that it “will continue to raise the policy interest rate.” The signals were cautious:"

"First, the 7-2 vote in favor of a hike, included two dissents (Asada Toichiro and Sato Ayano) in favor of holding rates steady."

"Second, the BoJ expects growth to moderate and underlying inflation to reach 2% only between the second half of fiscal 2026 and fiscal 2027."

"Third, BoJ Governor Kazuo Ueda warned that rapid rate hikes could unsettle asset prices, adding that it could take some time to confirm that 2% inflation is entrenched. To his point, headline and core CPI inflation remained under 2% y/y in August."

"Bottom line, the Fed’s hawkish hike and the BoJ’s cautious tightening tilt USD/JPY higher, leaving our bearish USD/JPY view plainly wrong. The next two key resistance levels for USD/JPY are offered at 158.42, the 200-day moving average, and 160.00. FX intervention risk will increase as we get closer to 160.00, raising the cost of shorting JPY and limiting the scope for an overshoot."

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