Markets are focused on the Bank of Japan’s decision on Friday after the yen rebounded sharply in Thursday’s US session, fuelling speculation of official FX intervention. USD/JPY dropped from above 163.00 to below 158.00 within minutes, a move that also left the policy meeting framed by questions over whether the currency strength can persist without further support. The BoJ is still expected to leave its policy rate unchanged at 1% after the June hike, and attention is set to shift to its quarterly Outlook Report and Governor Kazuo Ueda’s press conference for guidance on growth, inflation and the policy path.
Inflation Expectations and Policy Outlook
The Tankan survey shows companies expect inflation to stay above the BoJ’s 2% target in coming years, while rising wages and services inflation are seen as reinforcing a wage-price cycle; officials may also update forecasts, with headline inflation potentially trimmed due to subsidies and softer energy prices. Market pricing points to at least one further 25-basis-point rise before year-end, with October and December in focus, according to Reuters.
Market Dynamics and Central Bank Messaging
USD/JPY has already fallen more than 2% and, with the decision largely priced in, direction may hinge on messaging. In the US, the Fed held rates on Wednesday for a fifth straight meeting, after which the dollar softened.
