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BNP Paribas Sees Yen Stabilising on Gradual BoJ Hikes
BNP Paribas expects the yen to stabilise as the BoJ tightens gradually. The call challenges the narrative of persistent pressure from rate differentials. The March BoJ meeting and wage talks are the next test for USD/JPY shorts.
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BNP Paribas expects the Japanese yen to stabilise as the Bank of Japan continues tightening policy at a measured pace. The call challenges the prevailing market narrative that the yen will remain under pressure from wide rate differentials between Japan and the US. The bank's research note assumes the BoJ will deliver gradual rate hikes spaced across multiple meetings rather than rushing to normalise policy.
The Gradual Tightening Thesis for the Yen
The simple read is that a slower tightening cycle helps the yen find a floor without triggering a sharp unwind of carry trades that have fueled yen weakness. The better market read is more specific: the stabilisation thesis relies on the BoJ raising the overnight call rate in small increments while the Federal Reserve holds rates steady. That combination compresses the two-year yield differential between US Treasuries and Japanese government bonds, reducing the incentive to short the yen.
BNP's note does not cite a price target. It signals that the worst of the yen's depreciation may be over once the market fully prices in the pace of BoJ action. The bank argues that the yen is already undervalued on a purchasing power parity basis. Any reduction in the real yield gap could trigger a repositioning.