BoJ Meeting Looms: JPY Faces Hawkish Expectations and Profit-Taking Risks

Rabobank's Senior FX Strategist Jane Foley is warning of potential risks to the Japanese Yen (JPY) in light of the upcoming Bank of Japan (BoJ) meeting. According to Foley, the market is largely priced for a BoJ rate hike tomorrow, and there is an expectation that Governor Ueda will have to follow up with a hawkish message on the pace of rate hikes going forward.

Foley notes that this week's better tone of the USD suggests room for a 'sell the fact' reaction in JPY vs. the greenback into the weekend. However, she believes that even if Ueda says nothing explicit about the pace of policy tightening, he has sufficient supportive economic data to signal a hawkish tone.

The BoJ's decision will be closely watched as it aims to manage second-order price effects and sustain moderate price pressures. While profit-taking on fresh long JPY positions cannot be ruled out following the meeting, Rabobank is optimistic that economic reforms in Japan can help sustain USD/JPY around current levels in the coming months.