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The Japanese yen stays on the front foot.
The Japanese yen extended a spell of outperformance after a Bloomberg report suggested the Bank of Japan is still considering raising interest rates this year despite political uncertainty in Tokyo.
The headline triggered a sharp adjustment in expectations, with MUFG noting that USD/JPY fell to a low of 146.31 as markets digested the signal.
“There are now around 15bps of hikes priced in by the December policy meeting compared to 12bp on Monday just after Prime Minister Ishiba’s resignation,” analysts at MUFG said in a midweek note.
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i – Based on average GBP/JPY rate observed in July.
Investors remain cautious about the near-term path, with only 8bps of tightening priced for October as traders wait for clarity from the new government.
According to MUFG, “BoJ officials will reportedly be monitoring signals from the new government, particularly what sort of economic measures it might promise and then how those steps might affect economic growth, inflation and financial markets.”
The October 30 policy meeting is seen as the earliest realistic window for action, giving the central bank time to gauge the fiscal and political backdrop.
The dollar side of the equation is also in play.
“The dollar index has been consolidating at around the 98.000-level over the last three months and hasn’t hit a fresh year to date low since 1st July even as short-term US yields have fallen sharply since the start of August,” MUFG said.
Above: USD/JPY in 2025.
Markets are fully pricing a 25bp rate cut at the Federal Reserve’s upcoming meeting and around 67bps of easing by year-end.
“The release today and tomorrow of the latest US PPI and CPI reports for August will be scrutinized closely for further evidence that higher tariffs are feeding through to higher inflation,” the bank added.
The US jobs picture has also darkened, with monthly employment growth slowing to 27,000 on a four-month average.
In addition, revisions cut 911,000 jobs from the tally through March, halving the pace of job creation compared with prior estimates.
These developments leave the yen with tactical upside if BoJ rhetoric hardens or if incoming US data disappoints.
As of Wednesday, USD/JPY traded at 147.45 (+0.1%), EUR/JPY at 172.52 (−0.05%), and GBP/JPY at 199.47 (+0.07%).
The pound cross remains central, with GBP/JPY particularly vulnerable to volatility should Japanese policymakers validate the market’s year-end pricing.
MUFG concludes that October’s meeting could be decisive if the new administration unveils credible measures, providing the BoJ with the confidence to hike.
For now, the yen is playing offence, supported by political headlines, dollar softness, and renewed belief that the BoJ is not done tightening.
