Japanese Yen: Range trade holds against US Dollar as Fed path questioned – Rabobank

Rabobank's Senior FX Strategist Jane Foley says markets see limited scope for another Bank of Japan (BoJ) policy move at the October meeting, with expectations instead centred on December. Foley argues that markets have priced in too much Federal Reserve tightening for next year and sees scope for USD/JPY to move lower as some of those expectations are unwound, maintaining a three-month target of 155.00.

BoJ milestone shapes Yen outlook

"Following the as expected 25 bps rate rise last month, market pricing suggests only a limited prospect of a policy move at the October 30 meeting, with expectations centring on December for the next policy move."

"Even though BoJ Governor Ueda repeated this morning that policymakers intend to “continue raising the policy interest rate” he described the Japanese economy as growing “moderately”."

"This may suggest that a hastened pace of rate hikes is possible, though clearly that depends on how the economy develops in the months ahead."

"This strengthens the market’s expectation that back-to-back BoJ rate hikes are unlikely."

"That said, it is Rabobank’s house view that the market has anticipated too much Fed policy tightening next year."

"Assuming some Fed rate hike risk is priced out, USD/JPY has the potential to move lower into 2027."

"We maintain a 3-month USD/JPY target of 155.00."

"While USD/JPY has moved higher since the September policy meeting, the market is fearful that a return to levels close to 160, could again trigger further intervention."