BoJ Shifts Hawkish as Yen Surges on Carry Unwind
The Bank of Japan (BoJ) has shifted its monetary policy stance to become more hawkish, with Governor Kazuo Ueda stating that the bank needs to pay greater attention to upside risks as underlying inflation approaches 2%. This change in tone is attributed to Scott Bessent's influence on Japanese monetary policy. As a result, there is widespread speculation that the BoJ could hike interest rates at consecutive meetings or resort to larger increments.
The yen has strengthened significantly against the US dollar since the coordinated intervention in late-July, with the intraday USDJPY lows reaching levels not seen since April/May this year. The two-year yields in Japan rose 13bps this week, the most in a while, indicating a carry unwind.
An FX trader at BofA noted that the move in dollar-yen appears to reflect a broader reallocation of risk following recent developments. This has led to speculation about short-covering opportunities.