BOJ Rate Hike Expectations Weaken Yen Despite Hawkish Opinions

The Japanese yen weakened against the US dollar after the Bank of Japan's September meeting failed to provide clear signs of future interest rate hikes. According to Takuya Kanda, senior FX analyst at Gaitame.com Research Institute, there were many hawkish opinions expressed by policymakers, but they were not enough to strengthen expectations for a consecutive rate hike.

The yen dropped as much as 0.5% to 158.21 against the dollar and was the worst performer among its Group-of-10 peers. Swaps market pricing for a rate hike by October 30 slipped to just under 20% from more than 30% at one point yesterday.

Yields on Japanese government bonds rose, notably on longer tenors, suggesting market concern that the central bank may not be moving fast enough to contain inflation. The BOJ's quarterly Tankan business survey showed confidence among Japan's large manufacturers rose to the highest level in more than eight years.