Rabobank Predicts USD/JPY to Fall to 157-158 Amid BoJ Rate Hike Speculation

The US dollar to Japanese yen (USD/JPY) exchange rate has been on an upward trend, recovering half of its July decline following joint US-Japan intervention. However, currency analysts at Rabobank predict that the USD/JPY will ease in the coming months due to a combination of factors.

Rabobank believes that fear of further foreign exchange (FX) intervention and the prospect of a Bank of Japan (BoJ) rate hike in September will push the USD/JPY to trade between 157-158 on a three-to-six month view. This prediction is based on recent comments from US Treasury Secretary Scott Bessent, who stated that he expected BoJ Governor Kazuo Ueda to 'do the right thing' and hinted at tighter monetary policy.

The BoJ's next policy meeting is scheduled for September 17-18, and markets are already pricing in a rate hike. Rabobank notes that Japan has domestic justification to act without US encouragement, citing rising inflation and a tight labor market. However, the real question remains why Bessent is openly pressuring another major central bank.

Rabobank suggests that there may be benefits for the US Treasury in a tighter monetary policy in Japan, particularly in relation to bond markets. The largest foreign holder of US Treasuries is Japan, and higher Japanese yields create an incentive for domestic investors to bring capital home. This could potentially reduce pressure on US debt.

Ultimately, Rabobank believes that the combination of intervention risk and September tightening can eventually pull USD/JPY back into 157-158. However, the next move will depend less on whether the BoJ hikes than on whether Ueda can convince investors there is another hike behind it.