The timing of a shift to US rate cuts remains uncertain, while expectations that the Fed could resume raising rates suggest how difficult it will be to correct the yen’s weakness even if the BOJ raises rates multiple times. Dollar/yen briefly recovered to the ¥156 level, and market participants are discussing the possibility that the interest-rate differential will continue to weigh on the yen.
Against the backdrop of the impact of the interest-rate differential, this article presents the view that markets are pricing in one more BOJ rate hike in 2026 and two more in 2027. This is creating a divergence between the interest-rate path priced in by markets and the dot plot, while expectations of further Fed rate hikes could affect the direction of the yen.
After the meeting, dollar/yen again recovered to the ¥156 level, while selling pressure on the yen from supply-and-demand factors has intensified, including the widening trade deficit reported in the August trade statistics. At the same time, even with markets pricing in multiple BOJ rate hikes, the current expectation that the BOJ will raise rates at the same pace as the Fed means that a shift toward yen appreciation cannot be taken for granted, according to the view presented.
The current interest-rate futures market is pricing in “two more BOJ rate hikes in 2026 and one more in 2027,” implying that over the next year the BOJ is expected to raise rates at a pace matching the Fed. This has also led to more cautious views on the prospect of a correction in the yen’s weakness.