Yen's Recovery May Be Running Out of Steam: OCBC Strategists

OCBC Bank's FX strategists argue that the yen's recent recovery may be running out of steam due to its already high expectations for further rate hikes from the Bank of Japan (BoJ). The analysts, led by Frances Cheung and Christopher Wong, note that markets have priced in a significant amount of BoJ tightening, limiting the currency's upside.

The strategists point out that the yen's trajectory will increasingly depend on global factors, particularly US yields and risk sentiment, rather than BoJ policy alone. They suggest that a shift in the global interest rate landscape or a clear change in Japan's inflation dynamics would be necessary to justify a sustained yen rally.

Several external and domestic factors could influence the yen in the coming months, including US Treasury yields, Japan's wage growth and inflation data, and geopolitical risks. A reduction in the BoJ's bond-buying operations could also signal a more genuine policy normalization, potentially boosting the yen more than rate hikes alone.