Strategists believe that Bank of Japan Governor Kazuo Ueda's remarks at the press conference disappointed investors who had been hoping for a more hawkish stance.
Zhitong Finance APP learned that on Friday, the Bank of Japan raised interest rates by the expected 25 basis points, lifting the benchmark rate to 1.25%, the highest level in 31 years. However, this widely anticipated rate hike failed to bolster the yen; instead, the currency weakened. As of press time, the USD/JPY exchange rate stood at 157.83. Strategists believe that Bank of Japan Governor Kazuo Ueda's remarks at the press conference disappointed investors who had been hoping for a more hawkish tone.
According to reports, regarding a 50-basis-point rate hike or consecutive rate hikes, Kazuo Ueda stated at a press conference: "That depends on how the price situation evolves. There are various possibilities, and we should not rule out any option." "We are at a stage where we need to carefully examine all the data. However, that does not mean we can afford to move slowly. We will analyze the data meticulously and take timely action when necessary," he added. "As for the future pace of rate hikes, we have no preconceived notion, such as once every three months. We will decide at each policy meeting how best to ensure that underlying inflation remains stable at 2%."
Kazuo Ueda also stated: "As we raise interest rates, financial conditions are becoming less accommodative… It is crucial to avoid overly tight financial conditions resulting from excessively aggressive rate hikes, or triggering a sharp correction in asset prices."
Many strategists believe that Kazuo Ueda's dovish remarks will weigh on the yen. Gerald Gan, Chief Investment Officer at Reed Capital, said: "It seems that (Kazuo Ueda) is trying to calm market sentiment. However, my view remains unchanged: the yen's weakness will persist in the short term." He added, "The divergence between the Bank of Japan and the Federal Reserve in forward guidance is also increasingly becoming a source of concern for the yen's stability in the weeks ahead."
Hiroshi Namioka, chief strategist at T&D Asset Management, said: "It seems the market is struggling to interpret Kazuo Ueda's remarks. Although the yen initially strengthened against the dollar after he mentioned the 'policy stage,' it has since resumed its downward trend." "Ueda's comments may suggest that the Bank of Japan has become more cautious about price movements deviating upward from its target. However, the bank did not articulate this point very clearly, so the market appears to be reacting with uncertainty. Ueda also stated that prices could move either up or down, so it would be premature to conclude that the Bank of Japan has shifted to a more hawkish stance."
Jumpei Tanaka, Head of Investment Strategy at Pictet Asset Management, stated: "The remark that 'the phase of policy implementation has shifted' gives the impression that the Bank of Japan has moved its interest-rate‑hike stance to a higher gear. With long-term bond yields rising rapidly, I believe this message is crucial for allaying market concerns that the BOJ is 'behind the curve.'" He added: "Given that the yen is under structural pressure, and with market pricing suggesting only a modest divergence in the pace of rate hikes between the Fed and the BOJ through mid-next year, it is unlikely that the outcome of this BOJ meeting alone will trigger a sustained appreciation of the yen."
Jumpei Tanaka also noted: "That said, trading is expected to be relatively light during Japan's long weekend, and investors remain cautious about the possibility of coordinated intervention by Japan and the United States. As a result, USD/JPY may continue to trade in a volatile, directionless range."
Chidu Narayana, Chief Strategist for Asia-Pacific at Wells Fargo & Co., said: "Kazuo Ueda's press conference sent some hawkish signals, but these were not enough to support the market's aggressive hawkish expectations. We still expect the Bank of Japan to continue raising interest rates, including a 50-basis-point hike in the first half of 2027, but we believe a rapid pace of rate hikes is unlikely. In the short term, the Bank of Japan's lack of a sufficiently hawkish stance, coupled with a stronger U.S. dollar rebound, should keep USD/JPY elevated and put pressure on the front-end yield curve of the Japanese yen."
Shriya Samarth, Head of Rates for Europe, the Middle East and Africa at Stonex Financial, noted: "I believe what's being communicated here is a wealth of conflicting signals—on the one hand, acknowledging that policy priorities have shifted, while on the other, showing reluctance to commit to addressing the upside risks to inflation. This reminds me of the European Central Bank's 'wait-and-see' approach, which it has pursued for more than a decade. In today's environment, where credibility has become a scarce commodity, such an approach would not be seen as sufficiently hawkish. The ECB has learned its lesson and pivoted, whereas Japan, like the EU, is equally vulnerable to oil imports from the Middle East; I think Japan should adopt a similar stance." "Personally, I disagree with this view. I believe there's too much balancing going on—Kazuo Ueda has consistently prioritized economic growth over inflation."
However, some strategists remain relatively optimistic about the yen's outlook. Masahiro Yamaguchi, head of investment research at SMBC Trust Bank, said: "Given the risk that the press conference could trigger a sharp weakening of the yen, my impression is that Governor Kazuo Ueda handled the situation well. Aside from the fact that two members opposed raising interest rates, the Bank of Japan's stance appears largely unchanged from before. Kazuo Ueda's explanation aligns with the BOJ's decision to accelerate the pace of rate hikes to once every three months, so there's no need to revise expectations for another rate hike in December this year. In that sense, I don't expect the yen to remain on a sustained depreciation trend." "The impact on bonds and stocks may also be limited. For the bond market, the next key focus will be assessing the government's fiscal stance following the cabinet reshuffle."
In addition to Kazuo Ueda's dovish remarks, two members of the Bank of Japan's Monetary Policy Committee voted against raising interest rates on Friday, sparking concerns that the central bank is "not hawkish enough." According to reports, among the nine policy board members, Toshiro Asada and Ayano Sato cast dissenting votes. Asada argued that the CPI inflation rate, excluding fresh food, remains below 2% and that "the economic outlook may not be strong"; Sato, meanwhile, contended that both the economy and price conditions have not picked up significantly, making "an interest-rate hike inappropriate at this time."
In response, Masahiko Loo, Senior Fixed Income Strategist at State Street Investment Management, said: "The market should not overreact to the dissent of the two committee members. These two members belong to the more dovish faction of the committee, while the majority remain firmly committed to Kazuo Ueda's policy normalization path. More importantly, Kazuo Ueda declined to rule out the possibility of future policy actions, further reinforcing the message that action could still be taken at every meeting."
"For the FX market, the USD/JPY remains a 'sell on rallies' trade, particularly as it approaches the 160 level. In the medium term, the trend will be shaped by three key structural forces: rising domestic yields as the Bank of Japan moves toward policy normalization; shifting institutional flows as Japanese assets regain their investment appeal; and continued AI‑related capital inflows into Japan. Together, these factors support a gradual reallocation of capital to Japan, further reinforcing the broader 'Japan Is Back' narrative."
For the Japanese yen, the key threshold of 160 yen per U.S. dollar has once again come into investors' focus. If investors conclude that the Bank of Japan's pace of monetary tightening will struggle to keep up with that of the Federal Reserve, the USD/JPY pair could resume its climb toward 160. Given that a 25-basis-point rate hike had already been largely priced in, and the BOJ's forward guidance was interpreted as dovish, this risk would be particularly pronounced.
The latest depreciation of the yen has once again brought the risk of intervention into sharp focus. This summer, Japan and the United States conducted their first coordinated yen-buying operation since 1998. While officials have emphasized the pace and disorderly nature of exchange-rate movements rather than any specific level, a renewed move toward 160 per dollar could test their tolerance. "If the yen comes under renewed pressure and falls below 160 per dollar, we should expect Japan and the United States to intervene in the foreign-exchange market again," said the head of strategy at Astris Advisory Japan.
Editor/Deng