JPY Soars on BoJ Tightening Expectations

The Japanese Yen has been strengthening against the US Dollar due to expectations of the Bank of Japan (BoJ) tightening its monetary policy. According to Scotiabank strategists, Shaun Osborne and Eric Theoret, USD/JPY is trading near 155.65 with the JPY outperforming G10 peers. This shift in market sentiment is attributed to markets pricing in a BoJ hike alongside elevated domestic risk around CPI and policy decisions.

The BoJ's approach has changed from intervention to a more fundamentally-driven approach, which leaves the policy outlook JPY-supportive. Markets have quickly moved to price in a BoJ hike over the past few weeks, reflecting this shift in government/BoJ currency management.

The outlook for relative central bank policy remains JPY-supportive as markets move to price in a more aggressive tightening path for the BoJ. For USD/JPY, support is seen at 153 and 152, while the upside focus has shifted to 158 after breaking 155.