Japanese Yen gains against USD after hawkish BoJ hold; attention turns to Ueda’s press conference

• USD/JPY faces selling for a second consecutive day as several headwinds weigh on the pair.
• Strong Tokyo CPI and a hawkish BoJ outlook reinforce December rate-rise expectations, supporting the JPY.
• The USD and spot prices come under pressure as US bond yields fall and hopes for diplomacy with Iran grow.

Following the eagerly awaited Bank of Japan (BoJ) decision, USD/JPY extends its decline further below the mid-157.00s in Friday’s Asian session, marking a third consecutive day of losses.

An 8-1 vote left the BoJ’s policy rate at 1.25%, as expected, with Takata favouring an increase. The accompanying statement indicated that core inflation is likely to remain close to levels consistent with the price target, while price risks remain skewed to the upside. Together with the strong Tokyo CPI figures published earlier today, this reinforces market expectations of an imminent rate rise in December. The Japanese Yen (JPY) consequently receives modest support, putting downward pressure on USD/JPY.

Hopes of a diplomatic settlement to end the US-Iran war continue to drive selling in the US Dollar (USD). Falling US bond yields are also reducing the US-Japan interest rate differential, providing further support for the lower-yielding JPY and adding to selling pressure on the Greenback. These factors strengthen the case for further USD/JPY weakness. Before taking fresh positions, however, bears prefer to hear BoJ Governor Kazuo Ueda’s remarks at the post-meeting press conference.