Yen: Soft USD and BOJ Outlook Shift Leave Near-Term Tone Soft – Scotiabank

USD/JPY is currently trading around 158.88104, maintaining a high-level range-bound pattern. In their latest report, Scotiabank strategists Shaun Osborne and Eric Theoret noted that while a softer dollar provides some respite for the yen, the near-term tone remains soft due to a shift in the Bank of Japan's policy outlook.

**Economic Data Reinforce Tightening Expectations**

Japan's July consumer price index and August purchasing managers' index data both came in stronger, providing key support for market bets on further monetary policy tightening by the BOJ. According to Scotiabank strategists, swap markets have already priced in around 20 basis points of rate hikes. This shift in expectations is gradually reshaping the short-term trading logic for USD/JPY, limiting the scope for further sharp one-sided upside in the exchange rate.

**Policy Risks and Intervention Concerns Coexist**

Despite rising tightening expectations, the yen still faces significant depreciation pressure. The strategists had previously warned that recent gains in USD/JPY have exceeded levels that previously triggered official intervention, with continued weakness raising concerns among market participants and government officials. Market reports indicate that substantive efforts to curb yen depreciation through coordinated action between the BOJ and U.S. authorities are being emphasized. On the technical front, Scotiabank sees resistance above 159.50 and support around 158.50, with the current price trading within this key range.

**Policy Communication in Focus Ahead**

With the BOJ considering a possible rate hike in the autumn, future policy commentary will be key to influencing yen movements. The strategists noted that if the BOJ maintains rates while signaling a hawkish stance, it could surprise markets and trigger yen strength. In the near term, the market will continue to seek a balance between tightening expectations and the risk of potential official intervention.