MUFG’s Michael Wan highlights that USD/JPY is still trading above 158, but Governor Ueda’s comments point to further Bank of Japan (BoJ) policy normalisation. Ueda stressed anchoring inflation around 2% and noted upside risks from imports, AI demand and JPY weakness. Wan remains constructive on the Japanese Yen, though further gains likely need faster BoJ rate hikes to validate market expectations.

BoJ stance key for Yen outlook

“USD/JPY continues trading above the 158 level, although Governor Ueda’s remarks continued to point towards further BoJ policy normalisation.”

“Ueda emphasised the importance of anchoring underlying inflation around 2% and highlighted upside risks from import costs, AI-related demand and JPY weakness.”

“Meanwhile, the 10-year JGB auction drew stronger-than-average demand as yields above 3% attracted buyers, suggesting investors are better compensated for duration risk despite lingering fiscal concerns.”

“However, the solid auction result may also limit further upward pressure on yields.”

“Our global team remains constructive on the yen, but further gains will likely require the BoJ to validate expectations for a faster pace of rate hikes, particularly after the GPIF report prompted some unwinding of recent JPY strength.”

“The report was interpreted as signalling continuity in portfolio allocation rather than a meaningful shift towards domestic assets, dampening expectations for an additional source of structural JPY demand and prompting some unwinding of long-JPY positions.”