Rabobank Stands Firm on USD/JPY Forecast Amid Yen Weakness

The Japanese Yen weakened despite Japan's interest rate hike, but Rabobank remains optimistic about its three-month forecast for the US Dollar to Yen exchange rate (USD/JPY). The bank predicts USD/JPY will reach 154.00 in the coming months, citing stronger wages and a lasting return of domestic inflation as key factors.

Rabobank's forecast was set before Friday's Bank of Japan decision, when the bank warned that an expected hike might fail to satisfy Yen buyers. The subsequent move has made the target more demanding, with USD/JPY rising 0.46% on Friday and 2.19% over the week.

The Japanese central bank voted 7-2 to raise its policy rate to 1.25%, effective from September 24. Governor Kazuo Ueda said 'We don't assume a specific pace for further interest rate hikes', echoing Rabobank's caution about Japan's recovery and the need for domestic improvement.

Rabobank argues that stronger pay is supporting Japan's escape from decades of weak inflation, with July's 2.4% annual increase in real cash earnings providing evidence of this trend. For the forecast to work, domestic improvement must translate into renewed demand for the Yen despite higher US rates.