BoJ Rate Hike Expectations Boost JPY vs USD

Market expectations of further rate hikes from the Bank of Japan (BoJ) have boosted the Japanese Yen against the US Dollar, according to MUFG. The bank's Derek Halpenny and Lee Hardman note that despite a weaker-than-expected GDP report, Japanese government bond yields are rising.

The pricing for a September hike remains elevated, with an around 80% probability of a hike, implying a 25 basis point increase at the next meeting. There has been no public comment from the Ministry of Finance (MoF) or BoJ to push back on this pricing.

Halpenny and Hardman argue that weaker US data will also help curb renewed yen selling in the near term. They believe the focus on BoJ rate hikes, supported by Prime Minister Takaichi's backing, has led market participants to overlook the GDP report's implications for monetary policy.