Rabobank sees limited BoJ move in October USD/JPY could drop on Fed tightening repricing

Rabobank's Senior FX Strategist Jane Foley suggests that markets are not expecting significant policy changes from the Bank of Japan (BoJ) at its October meeting. Instead, the focus is on December for the next potential move. Foley notes that while BoJ Governor Ueda emphasized the intention to continue raising interest rates, he described the Japanese economy as growing "moderately," which may indicate a cautious approach to rate hikes.

Foley argues that markets have priced in too much Federal Reserve tightening for next year. She believes that if some of those expectations are unwound, the USD/JPY pair could move lower. Rabobank maintains a three-month target of 155.00 for USD/JPY.

Despite USD/JPY moving higher since the September policy meeting, there are concerns that a return to levels close to 160 could trigger further intervention. This cautious outlook reflects the delicate balance between Fed policy expectations and BoJ's gradual approach to rate hikes.