BoJ Hike May Not Be Enough to Support Yen Recovery

The Japanese Yen's recent gains against the US Dollar have been reversed, leaving the Bank of Japan's (BoJ) upcoming decision on September 17-18 as a crucial test for its value.

Natixis economists Alicia García Herrero and Kohei Iwahara expect the BoJ to raise its policy rate by 25 basis points to 1.25% next month, citing strengthening inflation pressure.

The pair's recent intervention-led gains were short-lived, with the USD/JPY exchange rate falling from above 164 to around 155 before recovering some of that ground.

Markets have already priced in a high probability of an increase, which has contributed to the Yen's relatively modest gains after the latest inflation release.

Standard Chartered has also brought its next expected increase forward from October to September and raised its terminal-rate forecast from 1.50% to 1.75%, but doubts that policymakers can exceed already hawkish expectations.