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2026-07-14 18:32:12
[Yen's Depreciation Pressure Remains Unresolved This Year; Nuveen Bets on Two Rate Hikes by the Bank of Japan in September and December] ⑴ Nuveen analyst Laura Cooper points out that the Japanese authorities' foreign exchange intervention failed to reverse the yen's decline, and the policymakers' cautious attitude towards further market intervention is shifting the main responsibility for curbing depreciation to the Bank of Japan, forcing it to consider a more aggressive pace of monetary policy normalization. ⑵ Cooper emphasizes in the report that as long as the US-Japan interest rate differential remains at its current wide level, the Bank of Japan's gradual rate hikes will have a very limited effect on boosting the yen's exchange rate. Given the government's priority on overheated economic recovery, a central bank that continues to tighten policy but cannot prevent currency depreciation may face credibility risks due to its policy framework being constrained by political considerations. ⑶ Based on the above logic, Nuveen expects the Bank of Japan to implement rate hikes in September and December respectively, attempting to narrow the interest rate gap through faster rate increases. However, the USD/JPY pair was still just a step away from the 40-year peak of 162.83 reached on July 1st on Tuesday. (4) From a market psychology perspective, short yen positions are fluctuating between the threat of intervention and expectations of interest rate hikes. If the Bank of Japan fails to release a more hawkish signal than the market is pricing in, the carry trade logic will continue to suppress the yen's upside potential. The key variables going forward are whether expectations for the Fed's policy path will ease and whether the Bank of Japan will adjust the yield curve control parameters ahead of schedule at its July meeting.
