Dollar Yields to No Hawkish Signal from BoJ

The US Dollar has been steadily gaining against the Japanese Yen this year, reaching its highest level in 2026. The current rate of around 163.84 USD/JPY is a significant increase from December's levels and marks a fifth consecutive month of gains for the pair.

Rabobank analysts are forecasting that the Dollar-Yen could extend higher unless the Bank of Japan signals faster rate hikes, with their three-month forecast at 159 now requiring several factors to align. According to Rabobank, a surprise Fed hike would likely deliver another powerful Dollar boost, but they do not expect this outcome and instead predict unchanged US rates may trigger 'a little profit-taking on long USD positions'.

However, the Yen's bigger test comes later in the week when the BoJ meets. Rabobank argues that recent BoJ comments may have been 'specifically aimed at preparing markets for hawkish signals' from Friday's meeting, and without them, the risk is clear: an absence of hawkish signals could open the door for further upside pressure on USD/JPY.

The bank notes that the Ministry of Finance has not bought Yen in the open market since spending JPY11.73 trillion between late April and late May, suggesting that officials may consider intervention 'too costly' when the underlying force is an appreciating US Dollar.