Yen's Recovery Hinges on BoJ Tightening, OCBC Strategists Say

The Japanese Yen's recovery against the US Dollar is largely dependent on the Bank of Japan's (BoJ) commitment to monetary policy tightening, according to OCBC strategists.

As long as the Federal Reserve maintains a higher-for-longer stance, the interest rate differential between the two countries favors the dollar, keeping the yen under pressure. To achieve a sustained recovery, the BoJ needs to signal and implement rate hikes that narrow this gap.

Japan's inflation has consistently exceeded the BoJ's 2% target, but the central bank has moved slowly, citing wage growth sustainability. Market participants are now watching for clearer guidance from BoJ Governor Kazuo Ueda on the pace of future adjustments.