The yen has risen as expectations of a BOJ rate hike and GPIF rebalancing resurface. Dollar/yen was pushed back to the 155.00 support level, in a move seen as being driven by fundamentals.
The yen has risen over the past several trading days, pushing dollar/yen back to the 155.00 support level. This article presents the move alongside growing expectations that the BOJ's monetary policy will become tighter, while concerns over fiscal policy remain in focus. The yen's appreciation is seen as being driven more by fundamentals than by speculation over intervention.
In terms of the BOJ's policy outlook, markets are pricing in a rate hike this month, with attention focused on a 25bp increase, while expectations of the previously discussed 50bp hike have waned. The derivatives market is seen as pricing in cumulative rate hikes of around 50bp by year-end and slightly more than 75bp by the middle of next year, a pace viewed as faster than forecasts assuming an additional 75bp of tightening.
Expectations have resurfaced that GPIF may tilt its asset allocation toward domestic assets, providing support for the yen. Such a move is expected to help curb capital outflows.