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[MARKET ANALYSIS] JPY gains on reports of a BoJ hike as soon as April and further jawboning

The JPY's recent gains reflect rising expectations for a Bank of Japan (BoJ) rate hike by April, driven by concerns over a weakening currency potentially fueling inflation.

Newsquawk StaffPublished On the live feed at — 3 more headlines followed before this page went public
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  • DXY is flat/incrementally lower this morning and currently within a narrow 99.26-99.40 range, which is towards the upper end of Thursday’s bands. Overnight, a White House Official suggested that the latest chip announcement was “phase one” and more could be put out following negotiations. That aside, not really much US specific newsflow, but focus will turn to a few Fed speakers and Industrial Production later.
  • G10s are mixed, with the Kiwi and JPY topping the pile whilst the Loonie is mildly pressured. The JPY was boosted overnight after a Reuters report suggested that the BoJ could hike as soon as April, with some members fearing a weak currency could lead to a resurgence in inflation. In the midst of all this, Finance Minister Katayama has continued to provide some jawboning, which also helped the JPY. USD/JPY currently trades at the lower end of a 157.97-158.70 range vs Monday’s open of 158.07.
  • Politics remains the main theme for Japan, as attention now turns to the 22nd of January, when PM Takachi is expected to dissolve the Diet. UBS believes that the LDP will be able to secure a half majority, improving the party's position. Interestingly, Nippon TV ran the numbers following the CDP-Komeito tie-up and calculated that LDP "would retain only 60 of the 132 single‑member districts it won in 2024". Though this is only a mathematical calculation, and does not account for Takaichi's high approval rating of more than 70%.
Context

This shift in sentiment, alongside continuous comments from Finance Minister Katayama, suggests the market anticipates a more hawkish stance from the BoJ, which could impact USD/JPY dynamics and broader risk sentiment across G10 currencies.

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