The Japanese Yen (JPY) continues to stay weak even after the Bank of Japan (BoJ) raised interest rates to 1.0%. Analysts say the rate hike alone was not strong enough to create a lasting recovery for the Yen.
According to analysts at Societe Generale, the next major move in USD/JPY may depend more on the US Federal Reserve than on the BoJ itself. They believe that if the Fed takes a more dovish stance and signals possible rate cuts or softer policy ahead, the US Dollar could weaken. In that case, short positions on USD/JPY may become attractive, especially since the pair has been trading at relatively high levels.
The bank also noted that short USD/JPY and short USD/SEK trades could perform well if the Fed delivers a softer policy outlook. On the other hand, any unexpectedly hawkish signals could lead to additional weakness in the Euro.
Meanwhile, OCBC pointed out that the BoJ’s 25 basis point hike to 1.0% was already widely expected by the market, which limited its impact on the Yen. Although the central bank still appears open to further rate increases, it has not indicated any plans to accelerate tightening aggressively.
Analysts at OCBC believe this cautious approach is one reason why the Yen has struggled to gain strong momentum. Even though Japan’s policy rate is now at its highest level in 30 years, the country still has the lowest real interest rate among G10 economies. This keeps the Yen attractive as a funding currency for investors, which continues to put pressure on the currency.
Both banks agree that the Yen needs a stronger catalyst before it can stage a meaningful recovery. Societe Generale believes a softer US Federal Reserve could provide that trigger, while OCBC argues that the BoJ would need to adopt a more clearly hawkish stance to give the Yen stronger support.
