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UEDA MUST DELIVER FOR HAWKS TO MEET ANY MEANINGFUL JPY APPRECIATION

ADMIN || 16th December 2025

The yen enters this week ahead of Friday’s BOJ meeting on firmer footing, helped by dollar softness and rising confidence that Governor Kazuo Ueda will deliver a 25 bp hike. Even so, the projected path remains slow and measured, a trajectory unlikely to offset the structural forces that have anchored the yen’s multi-year depreciation.

Japan’s challenge is no longer about delivering a single increase but about convincing markets that policy normalization will amount to more than a symbolic gesture. Swaps now imply one additional hike in 2026, lifting the policy rate to 1% by the October meeting.

There is scope for the yen to build on recent gains if Ueda reinforces concerns around wages and inflation. Yet the recent hawkishness merely appears to be a reaction to currency weakness, raising the bar for a genuinely forceful policy turn.

Even if Friday brings the first raise since January, the broader data backdrop provides little justification for a rapid sequence of follow-up moves. Without an explicit roadmap signalling more urgency, the BOJ risks delivering a move that markets treat as isolated rather than a meaningful normalization cycle.

Japan’s deeply negative real-rate profile reinforces that challenge. Persistent outflows into higher-yielding foreign assets highlight how uncompetitive domestic returns remain, anchoring a soft-currency environment. Until real rates move materially higher, the fundamental incentives behind yen-funded carry are unlikely to fade.

The yen may be bid heading into this week’s meeting, but the burden rests squarely on the BOJ to validate those gains. Without a signal that tightening will proceed with more conviction than already implied by the swaps curve, depreciation risks are likely to reassert themselves once the dust settles.

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