USD/JPY Falls Below 160 as Markets Favor Two BOJ Rate Hikes

USD/JPY has slipped back below 160 as the yen strengthens following recent remarks from US Treasury Secretary Scott Bessent that imply Japan's BOJ may speed up its rate hike pace. Front-end JGB yields have reached fresh multi-decade highs, with markets now favoring two BOJ rate hikes this year.

Market participants are cautiously optimistic about a potential September hike and another by the end of the year. This is reflected in Japan's OIS curve, which has shifted significantly over the past couple of months. The 70% chance of a 25bp hike in September and 75% for a second move by December indicates a more aggressive BOJ tightening cycle.

The lack of curve flattening raises questions about whether attempts to tame the back end of the JGB yield curve will be successful. This could have global implications, given Japan's standing as the second-largest sovereign bond market behind the US.