BoJ Rate Hike Expectations Boost Yen Against USD

Japanese Yen prices have been supported against the US Dollar due to rising expectations of further Bank of Japan rate hikes, according to MUFG's analysts Derek Halpenny and Lee Hardman. Despite a weaker-than-expected GDP report, Japanese government bond yields are increasing, driven by market anticipation of higher interest rates. The pricing for a 25bp hike at the next meeting in September remains elevated, implying an around 80% probability of a hike.

The Bank of Japan's credibility has been reinforced by the lack of official pushback on this prospect, as well as weaker US data, which should help curb renewed yen selling in the near term. This view is supported by market participants who have focused on reports indicating that the BoJ is set to push ahead with sooner rate hikes with the support of PM Takaichi and the government.