The Japanese Yen underperformed against major currencies on Tuesday following reports that the Bank of Japan (BoJ) is likely to hold off on a rate hike at its upcoming October 30 meeting. According to Bloomberg, BoJ officials are inclined to skip a second consecutive rate increase in October, after raising the policy rate to 1.25% on September 18, but are keeping the possibility of a December hike open. This stance led USD/JPY to spike to just under 158.50 before briefly dipping below 158.00, then rebounding as US bond yields rose later in the day [1].
Market pricing reflected these expectations, with overnight swaps indicating only a 10% probability of an October hike but an 88% chance by December [1]. The BoJ's own survey, released Tuesday, showed that Japanese households anticipate consumer prices to rise by 11.8% on average over the next year [1]. The yield differential remains significant, with the US Federal Reserve's rate at 3.75%-4.00% compared to the BoJ's 1.25%, and the US 10-year Treasury yield at approximately 5.2%, about 2.2 percentage points higher than Japan's 10-year yield at 3.0% [1].
Technical analysis showed USD/JPY briefly dipping below the 50-day Exponential Moving Average (EMA) near 158.00, stopping just above the 200-day EMA, with both averages about a third of a yen apart. The pair has not traded above 159.00 since September 24, and has remained in a range between roughly 157.50 and 159.00 since October 5 [1].
There are no significant Japanese data releases expected this week that could move the Yen, and the next BoJ decision is scheduled for October 30. Meanwhile, Finance Minister Katayama and US Treasury Secretary Bessent are attending IMF meetings in Bangkok, with no indication of imminent coordinated intervention. Upcoming US economic data, including September consumer prices, producer prices, and retail sales, as well as remarks from Fed Chair Warsh, are expected to influence US Treasury yields and, by extension, USD/JPY [1].
CONCLUSION
The BoJ's apparent reluctance to hike rates in October has weighed on the Yen, with markets now focused on a potential move in December. The wide interest rate differential between the US and Japan continues to support USD/JPY, and upcoming US economic data could further influence the currency pair. For now, the Yen remains under pressure amid a lack of domestic catalysts and a cautious BoJ outlook.