The Japanese yen continued to see some volatility as the market adjusted to the Bank of Japan’s (BoJ) hawkish policy, driven by moderate economic recovery and stable employment.
The BoJ’s hawkish tone could support the yen. Japanese bond yields also stabilized to a certain extent as a result and could return to the upside, reflecting market expectations of ongoing tightening.
The bank is expected to potentially raise rates again in May, with a more probable hike in July, with inflation data surpassing the target.
In contrast, Japan’s consumer confidence index dropped to 35.2 in January, the weakest level since September 2023. While this suggests weaker domestic sentiment, it is unlikely to offset the BoJ’s tightening measures in the near term.
The yen could retain its strength in the meantime as market participants factor in the likelihood of continued rate hikes while some caution could grip the market ahead of the Federal Reserve’s meeting.
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