USD/JPY is expected to reach around ¥157 toward year-end, with the BOJ's rate-hike policy and the government's fiscal expansion set to be the main focus. US developments and oil prices are also expected to be key market drivers.
USD/JPY was in the upper ¥159 range at the beginning of the month, then briefly moved into the ¥152 range on the 8th as the yen strengthened. Following comments by US Treasury Secretary Scott Bessent, market views on Japan's monetary and fiscal policies were revised, with the possibility of faster BOJ rate hikes and the government's expansionary fiscal stance reportedly becoming market factors.
USD/JPY subsequently moved higher at times as expectations of US rate hikes increased against a backdrop of rising oil prices and upside surprises in inflation indicators, and it is now reportedly back in the upper ¥154 range. The focus going forward will be the BOJ's rate policy and the government's fiscal policy. As the former faces significant hurdles, factors driving yen depreciation rather than appreciation are expected to be limited, while the latter is expected to remain focused on policy themes that are likely to highlight fiscal expansion.
Over the longer term, Japan's fiscal expansion and US interest-rate trends are expected to support further yen depreciation, and USD/JPY is forecast to be likely to swing back toward yen weakness through year-end. USD/JPY is expected to be around ¥157 in 3 months.
Long-term interest rates started the month in the upper 2.9% range and then rose into the low 3.0% range, reaching their highest level in approximately 30 years. Although they subsequently declined temporarily as the yen's depreciation was partially reversed, they have again remained in the low 3.0% range, and upward pressure on domestic interest rates is expected to persist.