According to OCBC strategists Sim Moh Siong and Christopher Wong, the Japanese Yen (JPY) underperformed overnight, distinguishing itself as the only major G10 currency that did not benefit from a late pullback in the US Dollar. This underperformance is attributed to limited support from Bank of Japan (BoJ) communication, with Governor Ueda providing no clear guidance in his recent remarks [1].
Market expectations for an April BoJ rate hike have been pared back, with the implied probability dropping to around 8 basis points from 12 basis points a week ago. Despite this, OCBC maintains that an April rate hike remains likely, citing the need to contain excessive JPY weakness. The strategists argue that persistent depreciation of the Yen is lifting inflation expectations and steepening the Japanese Government Bond (JGB) yield curve, in sharp contrast to the curve flattening observed in the US, Europe, and the UK following February [1].
The report highlights growing market unease that the BoJ risks falling behind the curve, as JPY weakness continues to exert upward pressure on inflation and bond yields. OCBC suggests that the case for either direct foreign exchange intervention or further policy normalization by the BoJ is strengthening, particularly to help stabilize the JGB market [1].
No explicit market reactions or analyst opinions beyond OCBC's outlook are provided in the article.
CONCLUSION
The Japanese Yen's continued weakness and lack of clear guidance from the BoJ have led to reduced market expectations for an April rate hike, though OCBC still sees such a move as likely. Persistent JPY depreciation is raising inflation expectations and steepening the JGB curve, increasing pressure on the BoJ to act. Market participants are increasingly concerned that the BoJ may be falling behind the curve.