BOJ Hike Bets Push USD/JPY Below 160

USD/JPY slipped back below 160 as the yen strengthened due to rising Japanese front-end yields, which pushed to fresh multi-decade highs. US Treasury Secretary Scott Bessent's comments implied that the Bank of Japan (BOJ) may speed up its rate hike pace, with markets now favoring two hikes this year.

The BOJ's OIS curve has undergone a significant hawkish shift, pricing around a 70% chance of a 25bp hike in September and another by December. This faster pace of expected tightening has put the front end of the JGB yield curve under pressure.

Despite the prospect of faster rate hikes, the JGB curve has not flattened further out. Yields remain close to their highs, leaving the back end vulnerable to a rupture higher. The lack of curve flattening raises questions about whether attempts to tame the back end will be successful.