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If the Bank of Japan does not change policy, we expect USD/JPY to fluctuate slightly above 150. We believe the 10-year JGB yield will gradually move towards the Bank of Japan’s ceiling, taking some of the pressure off the yen. We will be watching the policy review in December, where a repeat of the late 2022 policy shift is likely.
Conversely, signs of policy tightening at the October 31st meeting – whether that is an abandonment of negative interest rate policy or yield curve control (YCC) – could push USD/JPY closer to 145, but further upside is likely to be hampered by Japan’s continued relationship with the U.S. There are limits to huge spreads.
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