BoJ Signals Scope for More Hikes, BNY Warns on Yen Risks

The analysis comes as the Fed holds rates steady, with TD Securities See Fed Holding Rates Longer. That static US rate backdrop makes the BoJ’s relative policy path the swing factor for the yen. If the BoJ follows through, USD/JPY could break below recent support levels. If the rhetoric softens, the pair is likely to remain pinned near multi-decade highs.

The Next Test for Yen Traders

The next BoJ policy decision becomes the immediate catalyst. Traders will watch for explicit rate guidance and any revision to inflation forecasts. Governor Ueda’s subsequent comments will also be parsed for consistency with BNY’s interpretation. Until then, the yen may stabilise but lacks a catalyst for a sustained rally without actual action.

For now, the BNY analysis creates a tactical decision: fade yen weakness on the basis that the BoJ will not follow through, or build a long yen position expecting the central bank to validate the hawkish signal. The direction of Japanese wage data and inflation prints in coming weeks will determine which scenario gains credibility. A rise in core CPI above 2.5% would strengthen the case for a July or September hike, while a miss would allow the BoJ to delay.

USD/JPY remains the most direct way to trade this view. A break below 152.00 would confirm the market is pricing in a tighter BoJ; a hold above 154.00 would signal the carry trade is still in control. For now, the BNY note adds a layer of risk to short yen positioning, even if the long-term trend remains in favour of yen weakness.