Japanese Yen: USD/JPY rises as October BoJ hike bets fade – MUFG

MUFG’s Lee Hardman reports the Japanese Yen has weakened about 0.5% against the US Dollar, lifting USD/JPY to 158.44, after the Bank of Japan’s (BoJ) Summary of Opinions disappointed expectations for an October rate hike. Japanese rate markets have scaled back BoJ tightening pricing, with MUFG still expecting another hike in December. Rising Japanese rates should support the Yen over time, but global tightening complicates efforts to curb weakness.

BoJ expectations repriced, yen sold off

"The main trigger for the yen’s sell-off was the release of the Summary of Opinions from the latest BoJ policy meeting from 17th-18th September policy meeting. The Summary of Opinions appears to have disappointed some market participants who were looking for a stronger signal that the BoJ were open to another hike as soon as next month."

"It has prompted the Japanese rate market to scale back rate BoJ hike expectations."

"It fits with our view that another hike as soon as next month remains unlikely given that the BoJ had just sped up the pace of hikes this month and signalled that it is likely to continue hiking rates every three months."

"We expect another hike by the end of this year in December."

"The Summary of Opinions reiterated that underlying inflation is now getting closer to their 2.0% target, and the perspective of stabilizing it around 2.0% has become important in order to keep the risk of underlying inflation deviating upward to a level above the price stability target and thereby exerting an adverse impact on the economy afterward. It was for this reason that the BoJ considered there had been a shift in the phase of monetary policy."