JPY: Limited upside as BoJ stays cautious – Standard Chartered

Standard Chartered’s Chong Hoon Park and Nicholas Chia argue that the Japanese Yen is unlikely to see significant appreciation near term, with USD/JPY projected at 160 by end-Q2. They highlight a weak flows backdrop, rising stagflationary risks and a cautious Bank of Japan, which is expected to keep rates unchanged in April before hiking in Q3.

BoJ caution and weak flows cap JPY

"We lower our 2026 GDP growth forecast to 0.7% (from 0.9%) and raise our CPI inflation forecast to 2.0% (from 1.8%), reflecting an intensifying terms-of-trade shock driven by surging energy prices and USD/JPY trading near the 160 level."

"Consequently, we expect the Bank of Japan (BoJ) to keep the policy rate unchanged at 0.75% at its April meeting, as the threshold for tightening has risen significantly due to weakening domestic demand."

"Our base case is for the BoJ to hike rates in Q3."

"We do not expect significant JPY appreciation in the near term; we see USD/JPY ending Q2 at 160, given the still-unconducive flows backdrop."

"A surprise BoJ rate hike in April and sustained USD weakness on market optimism over a material de-escalation in geopolitical tensions would pose downside risks to our USD/JPY forecast."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)