JPY lags as BoJ rate hike expectations fade - Rabobank

The week ahead is an important one for Japan and potentially for the JPY. Not only will PM Takaichi meet President Trump for the first time in person, but it is hoped that the October 30 BoJ policy meeting will provide some clues as to when interest rates may next be raised, Rabobank's FX analyst Jane Foley reports.

Market doubts October and December BoJ hikes

"Market implied policy rates currently point to 20 bps of rate hikes on a 3-month view which points to the market's loss of confidence in the BoJ's ability to announce another 25-bps rate rise before the end of this year. In line with the diminished hope for a rate rise in both the October and December policy meetings, the JPY is the worst performing G10 currency in the month to date by a wide margin."

"Since the start of the month, the JPY has lost over 3% vs. the USD, which is the best performing G10 currency in October so far. We see scope for the JPY to recover some ground vs. the USD on the assumption that BoJ rates can be hiked again by the turn of the year. In turn, this assumes that BoJ Governor Ueda will underscore the central bank's hawkish bias at this week's policy meeting. We forecast a move to USD/JPY 147 on a 3-month view."

"Given that real rates in Japan are still at levels usually associated with a crisis, we see good reason for Governor Ueda to hint at his press conference this week that the BoJ remains committed to a policy of cautious policy normalisation. We would favour selling rallies in USD/JPY into the BoJ policy meeting. The recent high around USD/JPY 153.27 is likely to offer some resistance."