Japanese yen surges to multi-month highs on clear policy shift hint from BoJ 

On Thursday, the Japanese yen saw its most significant one-day surge in nearly a year, driven by a clear hint from Japanese monetary authorities at a potential policy shift. In contrast, the euro was on track for its most substantial weekly decline since May. 

The dollar index faced downward pressure, particularly against the yen, which surged by almost 2%, reaching its highest level in three months.  

Bank of Japan (BoJ) Governor Kazuo Ueda said that the central bank has multiple options regarding the target for interest rates once it moves short-term borrowing costs out of negative territory, sparking market speculation of an imminent change.  

The Japanese yen, which had been under pressure due to significant bearish positions, began showing strength. The dollar saw a decline of up to 1.9% against the yen at one point, ultimately dropping 1.78% to 144.68. The pound to yen rate — GBP to JPY — slid by 1.80% to trade at 181.70. 

BoJ policy stance: Markets expecting end to ultra-loose policy 

The BoJ has maintained a unique stance among central banks by adhering to ultra-low interest rates, resulting in the yen weakening significantly against the dollar and prompting speculation about potential intervention to support the currency. There is a growing anticipation for the BoJ to signal a departure from the ultra-loose monetary policy stance, and the upcoming meeting next week may provide the platform for such an announcement.  

The recent dynamics are notably in line with recent remarks from former Japanese top currency official Tatsuo Yamasaki. In late November, Yamasaki told Reuters that the Japanese currency was likely to regain strength in 2024 and would likely not decline past 150 per U.S. dollar. 

Yen forecast: ING says USD/JPY could drift to 145.00 area in the coming week 

Chris Turner, Global Head of Markets at Dutch bank ING, issued a yen forecast that had the USDJPY pair potentially drifting towards the 144.50 to 145.00 area 

“The short-term highlight [in forex markets] is the outperformance of the yen. The focus here, once again, is whether the Bank of Japan (BoJ) plans to end eight years of negative interest rates when it meets on 18/19 December. The FX market has been here many times before with this story - only to be rudely disabused of its speculation every time. 

However, at ING we have penciled in a BoJ rate hike in the second quarter of next year. Our suspicion is that speculation of a BoJ move at the 18 December meeting is premature since there is no accompanying Outlook Report — a report that could show CPI sustainably hitting 2% and justifying an end to negative rate policy. That said, USD/JPY could still drift to the 144.50/145.00 area over the next week as speculation continues to build about a December BoJ move.”