Approaching the 160 level, the Bank of Japan's "moderate hawkish" stance is unlikely to save the yen's decline.

Strategists say that after the Bank of Japan kept interest rates unchanged as expected, the recent weakness of the yen is unlikely to be contained, even though this rate decision leans slightly towards hawkishness. After the Bank of Japan maintained its benchmark interest rate at the highest level in thirty years, the yen continued to decline, with the USD/JPY rate falling by 0.2% to 158.74. The bank is currently monitoring the impact of last month's rate hike on the economy. With the exchange rate hovering around 158, just one step away from the key psychological level of 160, strategists have differing opinions on whether the yen can bottom out and rebound from here. Inertia of depreciation and policy "weakness" Strategists believe that despite the Bank of Japan releasing a weak hawkish signal verbally, the lack of substantial strong language makes it difficult to reverse the downward pressure on the yen in the short term. Shogo Karitani, a strategist at Minato Bank, stated that the policy statement added that exchange rate fluctuations are increasingly likely to affect prices and potential inflation trends. Although the market had hoped for stronger language against the yen's weakness, it did not appear, keeping downward pressure on the currency. Hiromi Ishihara, stock investment director at Amundi Japan, also shares a similar view, stating, "The market is actually suggesting that current interest rates may be too low relative to current inflation levels. In the short term, we expect the yen to weaken further, but we also expect the government to intervene. Therefore, I do not expect disorderly selling of the yen, but I am not optimistic about the yen appreciating in the short term." Yujiro Goto, a foreign exchange strategist at Nomura Securities, also holds a cautious stance on the yen, stating, "The message conveyed by the Bank of Japan's monetary policy meeting aims to signal a recognition of the rate hike in April. Market expectations of a rate hike by July were fully priced in before this meeting." Eugenia Fabon Victorino, SEB's Asia strategy chief, stated, "Economic forecasts are more optimistic than those submitted in October last year. The Bank of Japan has also removed references to 'heightened uncertainty from trade impacts.' This strengthens our view that the Bank of Japan will continue to tighten policy in 2026. Currently, we expect the next rate hike to occur in July. Historically, Ueda has not been able to provide enough hawkish guidance to satisfy the market. As long as fiscal concerns remain dominant, Ueda is unlikely to stop the accumulation of buying pressure on the USD/JPY." Seeking a glimmer of a "bottom" Some strategists have unearthed positive factors from the modifications made by the Bank of Japan, believing that the policy's "hawkish shift" is building a bottom for the yen. Frederic Neumann, Chief Economist for Asia at HSBC, stated, "The revisions in the Bank of Japan's forecasts imply a hawkish inclination among officials, although markets remain cautious in pricing in policy rate hikes for the year after the interest rate decision. By adjusting inflation projections, monetary policy officials have expressed stronger confidence in price prospects, which in turn will enhance the rationale for further rate hikes." Mamoru Shimode, Chief Strategist at Resona Asset Management Co., stated, "Relatively strong prospects for inflation and wages present some degree of hawkish tone. Considering the rise in the 2-year bond yields, this has subtly guided the market to anticipate a rate hike in April. While the Japanese bond market can more easily digest the slightly hawkish communication from the Bank of Japan, the foreign exchange market faces uncertainty ahead of the Fed meeting. If the Fed shows a hawkish stance, the yen may face selling pressure, making it difficult for investors to act decisively at the moment. The stock market faces the significant event of elections, with the corporate earnings season already underway. Therefore, even if the Bank of Japan's hawkish tone has some negative impact, investors are unlikely to be overly pessimistic." Naomi Muguruma, Chief Bond Strategist at Mitsubishi UFJ Morgan Stanley Securities, stated, "As committee member Takada advocates for a rate hike and evaluates potential strong inflation, the market is expecting a rate hike in April. Long-term rates will continue to fluctuate."