Japanese Yen Weakens as US Dollar Gains and BoJ Outlook Shifts

The Japanese Yen (JPY) moved lower on Friday, slipping around 0.3% against the US Dollar (USD). This made it one of the weakest performers in the G10 currency group. The decline comes as traders digest recent hawkish comments from Bank of Japan (BoJ) Governor Kazuo Ueda and reassess Japan’s medium-term monetary outlook.

Despite only mild US Dollar strength, the Yen’s reaction has been notable. Analysts at Scotiabank, including Chief FX Strategists Shaun Osborne and Eric Theoret, explained that markets are now shifting focus beyond the upcoming December rate decision.

BoJ Signals Hawkish Intent, but Markets Eye the Bigger Picture

Investors initially responded strongly to Ueda’s remarks earlier in the week. His comments boosted expectations of a 25-basis-point rate hike in December, which is now nearly fully priced in.

However, the market narrative has quickly evolved.

Shift in Market Focus

• Short-term: A December rate hike still appears likely.
• Medium-term: Traders want clarity on the BoJ’s next steps, inflation outlook, and long-term policy direction.
• Long-term: Rising Japanese Government Bond (JGB) yields are becoming a major concern.

Scotiabank strategists noted:

“The Yen is off by about 0.3% against the US Dollar and is underperforming all G10 currencies in an environment where USD strength is actually quite mild.”

They added that the bond market remains critical to understanding the BoJ’s position.

“Volatility in JGB yields was a major reason the BoJ paused tightening earlier in the year. With yields now pushing to multi-decade highs, investors are wary of seeing the same pressures build again.”

What Rising Yields Mean for the Yen

Japan’s bond market has experienced sharp upward pressure on yields. Higher yields can limit how much the BoJ can tighten policy without triggering financial instability. This uncertainty is weighing on the Yen and keeping traders cautious.

Outlook for JPY/USD

For now, the Yen remains vulnerable:

• Mild US Dollar strength continues to pressure JPY.
• Market confidence depends on how the BoJ manages rising yields.
• Traders seek guidance on Japan’s longer-term policy direction, not just December’s meeting.

Unless bond market volatility eases or the BoJ signals a clearer tightening roadmap, JPY may struggle to regain upward momentum.

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