BoJ Hike Bets Fuel Japanese Yen Gains Against US Dollar

The Japanese Yen has seen significant gains against the US Dollar as expectations for faster Bank of Japan (BoJ) policy normalisation build. According to OCBC's Christopher Wong, USD/JPY has broken below 155 and accelerated towards the low-154s.

Markets are now nearly fully pricing a 25bp hike next week at the BoJ meeting, with comments from PM Takaichi's economic adviser Takuji Aida adding to the shift in rate expectations. Wong warns that sustained trading below 155 could turn prior support into resistance and open further downside.

However, stronger US inflation data this week could trigger a rebound in USD/JPY, despite sentiment towards JPY appearing to be turning less bearish due to signs of domestic capital repatriation and reduced appetite for yen-funded carry trades.