The yen plunged after the US Federal Reserve delivered a hawkish rate hike, further raising the importance of the BOJ's monetary policy meeting this week. Markets are wary that the wide US-Japan interest rate gap may persist.
The US Federal Reserve raised interest rates on the 16th for the first time since 2023 and indicated that it expects to continue raising its policy rate. In response, traders priced in 3 additional hikes by the middle of next year.
The yen briefly fell to ¥156.42 in overseas trading after the Fed's decision. Expectations for the BOJ to accelerate its pace of rate hikes and speculation that carry trades would be unwound have receded, while the yen continued to trade in the low ¥156 range in Tokyo.
The hurdle for the BOJ is high, analysts said, while the overnight OIS market is pricing in a 25-basis-point rate hike. Investors will focus on Governor Kazuo Ueda's press conference for clues about the pace and size of future rate hikes.
Experts said Japan would need additional rate hikes and hawkish messaging to curb yen weakness, and pointed to the possibility that the risk of a return to ¥160 cannot be ruled out.