Against the backdrop of expectations for a Bank of Japan rate hike, many market participants believe that downward pressure on the yen will persist against the dollar. Ahead of the BoJ meeting on 18 September, the market is focused on the pace of rate hikes and the debate over the neutral interest rate.
The latest outlook for USD/JPY reflects market expectations that the Bank of Japan will raise rates around 4 times before year-end, bringing the policy rate to approximately 2%. A 0.25% hike is expected this time, while higher crude oil prices have also been cited as a factor that could influence the market. There is a view that comments from BoJ Governor Ueda at his press conference may provide clues about the pace of future rate hikes.
From a technical perspective, the level around ¥160 is likely to attract attention as a psychological threshold. Market movements near the point where the 50% retracement of the decline from the ¥164 high overlaps with the 200-day moving average are also being closely watched. The immediate target is seen in the mid-¥158 range, which could also act as a level that caps gains if yen selling intensifies.
Three scenarios are envisaged for the yen market depending on the rate-hike outcome. They include a slightly weaker yen as the event removes an overhang, a stronger yen if there are dissenting votes, and a slightly stronger yen if a unanimous vote leads to an accelerated pace of rate hikes. Conversely, a decision to hold rates would likely trigger a rapid weakening of the yen, while signs that additional rate hikes are likely before year-end could point to yen strength.