Yen still expected to strengthen further in 2024 despite BoJ’s cautious policy stance – MUFG

The Yen has weakened following the decision from the Bank of Japan (BoJ) to leave their policy stance unchanged. Economists at MUFG Bank analyze JPY outlook.

Cautious BoJ

Comments from Governor Ueda today and the largely unchanged policy statement have provided a dovish signal that the BoJ is not yet ready to commit to a time line for raising rates, and wants to maintain policy flexibility. 

The cautious approach casts doubt on our forecast for an exit from negative rates in January although does not completely rule out an imminent policy shift to tighter policy at the start of next year if upcoming data and hearings give them more confidence in the inflation outlook. However, the chance of flagging a rate hike in January was described ‘low’ by Governor Ueda with little new data expected by then. 

It provides a short-term setback for the Yen but with policy divergence between the BoJ and other major central banks set to narrow next year, we still expect the Yen to strengthen further in 2024.