Yen Takes a Hit as Japan Lags Behind Global Central Banks

The yen has come under pressure as investors bet that Japan's central bank will struggle to keep pace with other hawkish global policymakers, widening its interest rate gap with major peers.

The Bank of Japan's (BOJ) decision to hike rates on Friday, despite two dovish dissents, contrasted with the Federal Reserve's recent move and other central banks sounding more hawkish. This has led markets to price in further increases this year.

Currency strategist Carlos Casanova at Union Bancaire Privée expects dollar/yen to rise to 160 by year-end before appreciating moderately to 156 by mid-2027, citing the approximately 275-basis-point US-Japan rate differential that supports yen-funded carry trades.