Yen soars on expectations of more BoJ hikes

The Japanese yen has started the week with huge gains against the US dollar and has climbed to five-week highs. In the European session, USD/JPY is trading at 154.14, down 1.1% on the day.

Will BoJ continue its tightening cycle?

The Bank of Japan rate hike on Friday was expected by the markets but the Japanese yen continues to show strong movement in the aftermath of the rate decision.  The yen initially recorded gains after the rate announcement but surrendered almost all of these gains on Friday. However, the yen has surged on Monday as investors are more confident that the BoJ will continue its move towards normalization and deliver additional rate hikes.

At a time when the major central banks are lowering interest rates, the BoJ is moving in the opposite direction. The move has been slow, as Friday’s hike was only the third since the tightening cycle began in March 2024. Governor Ueda said on Friday that “our basic thinking has not changed” but he also hinted at further interest rates, which has given the yen a sharp boost on Monday. Friday’s rate hike of 25 basis points brought the policy rate to 0.5%, its highest level since October 2008, during the global financial crisis.

What’s next for the BoJ? Governor Ueda didn’t provide any dates for a possible rate hike at his post-meeting press conference but noted that “there is still a considerable distance to the neutral rate”, a level that is not stimulative or restrictive to the economy. Ueda has repeatedly said that wage growth is needed to ensure that inflation remains sustainable and the rate statement expressed confidence that the annual spring labor talks would result in higher wages. If wages continue to rise, the BoJ could respond with another rate hike in May.

USD/JPY technical

• USD/JPY has pushed below support at 154.90 and is testing support at 153.79.

• 155.88 and 156.99 are the next resistance lines.