USD/JPY Weakens, BoJ Hints at 2026 Tightening
The USD/JPY pair weakened in Asian trading on Monday, hovering around 156.20 and briefly approaching 156.00. This weakening occurred after the Japanese Yen (JPY) strengthened, following signals from the Bank of Japan (BoJ) reinforcing expectations of continued policy tightening in 2026.
In the Summary of Opinions from the BoJ's December policy meeting, several members argued that interest rate hikes needed to be gradual to avoid "falling behind the curve." Some members also emphasized that Japan's real interest rates remain among the lowest in the world, thus allowing room for rate hikes, especially given the inflation risks triggered by a weakening exchange rate.
These signals helped stabilize the JPY, while also containing upward pressure on JGB yields and reducing the risk of sudden policy changes. Some BoJ views also suggest that government stimulus could support growth in the next 1-2 years, while other projections predict that real wages could potentially return to positive levels in the first half of next year.
In the United States, the USD is also facing pressure as markets continue to hold expectations of two Federal Reserve interest rate cuts in 2026. Investors are now awaiting the release of the FOMC Minutes from the December meeting, scheduled for Tuesday, to gain a clearer understanding of the Fed's internal debate and policy direction heading into 2026.
At the December meeting, the Fed cut interest rates by 25 basis points (bps), bringing the target range to 3.50%–3.75%. In total, the Fed has cut 75 bps throughout 2025. According to CME FedWatch, the probability of the Fed holding interest rates at the January meeting is 81.7% (up from 77.9% a week earlier), while the probability of a 25 bps cut has dropped to 18.3% (from 22.1%). (asd)
Source: Newsmaker.id
