BoJ Hike Underwhelms Market Expectations, Yen Takes Hit

MUFG's Derek Halpenny notes that the Bank of Japan's 25bp hike to 1.25% fell short of hawkish market pricing, triggering an initial Yen sell-off as expectations for larger moves proved overdone.

The BoJ language on real rates shifted from 'negative' to 'low', while guidance still points to accommodative conditions and further gradual tightening.

MUFG sees scope for USD/JPY to grind higher short term if Dollar sentiment stays favourable, with some giveback from recent Yen strength making sense over the short-term.