Market News

By Matthew Burgess and Winnie Hsu

(Bloomberg) -- The yen looks set to weaken past 160 per dollar after the Bank of Japan skipped a potential hike and Governor Kazuo Ueda said the central bank isn’t in a rush to raise rates, according to strategists. 

The cautious BOJ, compared with the hawkish Fed, may give further impetus for carry traders to bet on future yen weakness, Saxo Markets says. Still, officials may push back on yen weakness around the 160 level, according to Brown Brothers Harriman. 

Here is a selection of comments from strategists:

Brown Brothers Harriman (Elias Haddad, senior strategist in London)

160 is up next for USD/JPY. Japanese officials will likely ramp-up currency jawboning as we approach intervention zone around 160.

Ueda reiterated the central bank will continue to hike if its forecasts are realized, though cautioned it’s in no rush given the uncertainty over US policy and lack of information on wages. Ueda added the wage trend will be clear in March or April, suggesting the BOJ could wait until then to raise rates again.

Saxo Markets (Charu Chanana, chief investment strategist in Singapore) 

Ueda has actually turned dovish, saying the inflationary trend is slow and even sounded unconvinced about the ongoing wage-price spiral. This seems to be a pushback on January rate hike expectations as well, as spring wage negotiations would only be clearer by March at the earliest.

USD/JPY has its eyes on 160 now, especially with thinner liquidity in the weeks ahead.

The Fed’s hawkish tilt and BOJ’s pause could bring fresh reasons for yen traders to “carry” on. The only thing in the way of new carry trades is heightened volatility, which means USD/JPY could face a firm resistance at 160, if not before. 

Mizuho Securities (Shoki Omori, chief Japan desk strategist in Tokyo)

The market is perceiving Ueda’s remarks on waiting for wage data means a rate hike is unlikely. BOJ however uses surveys to help guide its expectations on wages and seems to think a January hike is not off the table. While the Bank of Japan may have maintained its flexibility, the market may have become skeptical and took the press conference as too dove or slow to hike rates.

Carry traders are coming back and its likely USD/JPY tests 158 in the coming months. That level as well as 160 have risks of intervention.

Skandinaviska Enskilda Banken (Eugenia Victorino, head of Asia strategy in Singapore)

With the Fed more hawkish into 2025, it gives more room for BOJ to continue tightening next year, delivering another hike as early as January. Yet, USD/JPY is still dominated by the Fed outlook. Until the market pulls back from the outsized reaction from the Fed meeting last night, there is very little that can dampen USD/JPY below 154.50. 

Credit Agricole CIB (David Forrester, senior strategist in Singapore)

The BOJ has said it needs to continue to monitor in the impacts of movements in financial and the exchange-rate markets on the economy, but there is no mention of a weak yen leading to upside risks to inflation. Importantly, USD/JPY is above 155 and what we think is the BOJ’s comfort zone.

 T&D Asset Management (Hiroshi Namioka, chief strategist and fund manager in Tokyo) 

Despite the lack of a rate hike, the BOJ’s review document could be boosting Japan’s financial shares, which rose in early afternoon trading. The stock market may have found clues in the review that monetary policy will gradually move away from easing in future, supporting lenders.

--With assistance from Marcus Wong, Saburo Funabiki, Momoka Yokoyama, Michael G. Wilson and Alice French.