USD/JPY: Dovish BoJ risks cap recovery – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong note that dovish-leaning Bank of Japan nominees have reinforced concerns that policy normalisation may lag, weighing on the Japanese Yen even as it remains fundamentally undervalued. The bank warns that intervention risk could rise if USD/JPY approaches 160 and keeps an end-2026 forecast of 149, maintaining a neutral stance on the pair.

Dovish nominees and intervention risk

"The JPY slipped as the JGB curve bear-steepened, reflecting market worries that the BoJ could fall further behind the curve after PM Takaichi nominated two policy board candidates with notably past dovish leanings."

"JPY and CNY remain fundamentally undervalued, but the recent Mainichi report and BoJ appointments reinforce a dovish perception, limiting the JPY’s ability to capitalise on its undervaluation."

"Intervention risk would return quickly if USDJPY drifts back toward 160."

"We remain neutral on the JPY."

"Our end-2026 USDJPY forecast stays at 149, as the currency is unlikely to transition from a funding currency to an investment currency unless the BoJ turns more hawkish than our baseline outlook of two rate hikes this year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)