Wells Fargo and Citigroup strategists think the yen could slip around Friday's BOJ decision, anticipating the central bank may fall short of the market's hawkish hopes. Pricing in interest rate swaps points to a near-certainty of a quarter-point move at the meeting.
After the decision, focus turns to what BOJ Governor Kazuo Ueda says, as traders hunt for guidance on the path ahead. Market odds still lean toward additional rate increases before the end of the year.
On Wednesday, the Federal Reserve enacted its first interest-rate increase in three years, which coincided with a drop in the yen, and Chairman Kevin Warsh signaled the Fed would keep pressing its campaign against inflation.
That slip followed a surge earlier this month, when the yen touched its strongest level since mid-February, topping the high it reached after the rare yen-buying operation conducted by the US and Japan in late July. A wide rate differential with other major economies has weighed on the currency in recent years.
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In a Thursday note, Wells Fargo strategist Chidu Narayanan said, "The hurdle for the BOJ to meet these expectations is high, and even higher to exceed them." "The risk is skewed toward a more dovish-than-priced outcome."
Citigroup projects the yen could get to 159 per dollar in the coming weeks. At the same time, Citigroup strategist Daniel Tobon called recent policy steps part of a broader "regime change" that could support a stronger yen over a longer horizon. "A lot of the really big concerns that we've had on the yen, they're slowly moving in the right direction," he said. ING Bank's Chris Turner expects the currency to weaken to around 157 to 158 if the BOJ does not signal further rate hikes.
ABN AMRO's Georgette Boele expects the yen to hover near 154 versus the dollar through the first quarter of 2027, citing the drag from energy costs, and then to firm later in 2027's second half as she anticipates the Federal Reserve and the European Central Bank will reduce interest rates. "We expect higher energy prices to halt the yen's recovery for now," she said.
For everyday investors, this is the tug of war to watch: near term, the BOJ's tone and the Fed-BOJ gap; longer term, whether Japan's policy shift really is that "regime change." Those swings filter into travel budgets, the cost of imported goods, and what you actually keep from any unhedged overseas investments.
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