BoJ Rate Hikes May Not Be Enough to Support JPY Gains

Japan's central bank faces constraints in raising interest rates, and further gains for the Japanese Yen may require additional policy tools. According to OCBC FX Strategist Sim Moh Siong, the market has already priced in an aggressive tightening cycle, with a roughly 85% chance of a September hike implied.

The Bank of Japan's (BoJ) last rate increase was in June, and it typically raises rates every six months. However, market expectations are high, pricing in a policy rate rise from 1.00% to 1.75% by July 2027.

Sim Moh Siong suggests that additional measures may be needed to counter persistent JPY depreciation pressures, such as policies aimed at encouraging the repatriation of overseas assets.