Yen softens but BoJ inflation signals boost December rate hike prospects

The Japanese Yen has softened slightly against the US Dollar after a report from Bloomberg suggested that Japan’s Government Pension Investment Fund (GPIF) did not discuss portfolio allocation during its September meeting. This led to the USD/JPY pair rising back above 158.00. Despite this correction, the Yen remains the best-performing G10 currency since the end of August, benefiting from faster Bank of Japan (BoJ) policy normalization and higher Japanese Government Bond (JGB) yields.

Reuters reported that the BoJ may signal this month that underlying inflation has reached its 2% target, according to three sources familiar with its thinking. This reinforces expectations for another rate hike in December. The report aligns with MUFG’s view that the BoJ will continue its aggressive pace of rate hikes, with another increase likely by the end of the year.

The US Dollar Index hit a fresh year-to-date high at 102.54 but has since lost some upward momentum. Meanwhile, the Yen has continued to trade on softer footing following the Bloomberg report, even though it has remained the strongest G10 currency since late August, strengthening alongside the US Dollar.