Yen's Appreciation Momentum Fades as BoJ Tightening Expectations Rise
The yen has been experiencing sharp fluctuations in value, but recent market expectations suggest that much of its appreciation potential may be running out. The Bank of Japan's policy rate is expected to approach the neutral level of 2% within twelve months.
Markets have already priced in around 45 basis points of BoJ tightening by year-end, which suggests that a significant increase in interest rates is not likely. A 50-basis-point September hike and back-to-back increases are considered unlikely.
The potential changes to the Government Pension Investment Fund's (GPIF) asset allocation have also supported the yen. The GPIF's increased allocation to Japanese stocks has contributed to the currency's appreciation.
The 155 area may act as key support for USD/JPY, but aggressive BoJ tightening already priced in has limited its potential for further gains.