BoJ Policy Narrative Loses Steam as Yen Driven by External Factors
The Japanese yen's valuation is being driven more by external factors than the Bank of Japan's policy narrative, according to ING strategists.
Despite the BoJ's gradual shift away from ultra-loose monetary policy, including yield curve control tweaks and rate hikes, the yen has not gained traction as expected. The central bank's policy adjustments have been widely anticipated and priced in by the market, limiting their impact on the currency.
The yen's valuation is instead being shaped by interest rate differentials between Japan and other major economies, particularly the United States. With the Federal Reserve maintaining higher rates for longer, the dollar-yen pair continues to find support, undermining the BoJ's efforts to strengthen the yen.