Bank of Japan's rate hike lands, yet the yen turns lower! Ueda Kazuo's remarks "not hawkish enough" as strategists warn the decline may continue.

The Bank of Japan raised interest rates by 25 basis points on Friday as expected, lifting its benchmark rate to 1.25%, the highest level in 31 years. But the hike, widely anticipated by the market, failed to boost the yen, which instead weakened. As of press time, the dollar was at 157.83 yen. Strategists believe that comments by BOJ Governor Kazuo Ueda at the press conference disappointed investors who had expected more hawkish remarks. It is reported that regarding a 50-basis-point hike or consecutive rate increases, Ueda said at the press conference: "It depends on how the price situation evolves. Various possibilities exist, and we should not rule out any options." "We are at a stage where we need to carefully examine various data. But that does not mean we can act slowly. We will carefully analyze the data and act in a timely manner when necessary." He added: "As for the pace of future rate hikes, we have no preset idea, such as once every three months. We will decide at each policy meeting how best to ensure that underlying inflation stabilizes at 2%." Ueda also said: "As we raise rates, financial conditions are becoming less accommodative... It is important to avoid excessively tightening financial conditions or triggering a sharp adjustment in asset prices due to overly aggressive rate hikes." Many strategists believe Ueda's not-hawkish-enough remarks will weigh on the yen. Gerald Gan, chief investment officer at Reed Capital, said: "It seems he is trying to calm market sentiment. But my view remains unchanged, that yen weakness will persist in the short term." "The divergence between the BOJ and the Federal Reserve in forward guidance is also increasingly becoming a concern for yen stability in the coming weeks." Hiroshi Namioka, chief strategist at T&D Asset Management, said: "It seems difficult for the market to interpret Ueda's remarks. Although the yen initially strengthened against the dollar after he mentioned the 'policy stage,' it has now turned weaker again." "Ueda's remarks may indicate that the BOJ has become more cautious about prices deviating upward from target. But the bank did not articulate this very clearly, so the market seems to be reacting with uncertainty. Ueda also said prices could deviate either upward or downward, so it cannot be assumed that the BOJ has turned more hawkish." Jumpei Tanaka, head of investment strategy at Pictet Asset Management Japan, said: "The remark that 'the stage of policy implementation has changed' gives the impression that the BOJ has shifted its rate-hike policy into a higher gear. With long-term bond yields rising rapidly, I think this message is crucial for dispelling market concerns that the BOJ is 'behind the curve.'" "Given that the yen is under structural pressure and market pricing shows little difference between the Fed's and BOJ's pace of rate hikes until the middle of next year, it is unlikely that the outcome of this BOJ meeting alone will trigger a sustained yen appreciation trend." Jumpei Tanaka also noted: "That said, trading is expected to be relatively thin during Japan's long weekend, and investors are also on alert for possible coordinated intervention by Japan and the US. Therefore, the dollar-yen may continue to move in a volatile and directionless manner." Chidu Narayana, chief strategist for Asia-Pacific at Wells Fargo, said: "Ueda's press conference released some hawkish signals, but they were not enough to support the market's aggressive hawkish expectations. We still expect the BOJ to continue raising rates, including a 50-basis-point hike in the first half of 2027, but we think the possibility of rapid rate hikes is low. In the short term, the BOJ's lack of sufficient hawkishness, combined with a stronger dollar rebound, should keep dollar-yen at a high level and put pressure on front-end Japanese yields." Shriya Samarth, head of rates for EMEA at Stonex Financial, pointed out: "I think what is being conveyed here is a lot of contradictory informationon the one hand acknowledging that policy priorities have changed, while on the other showing reluctance to commit to addressing upside inflation risks. This reminds me of the European Central Bank's 'wait-and-see' strategy that lasted for more than a decade. In an environment where credibility is a scarce resource, this will not be seen as hawkish enough. The ECB has learned its lesson and shifted, and Japan is in fact similarly vulnerable to Middle East oil imports. Like the EU, I think Japan should do the same." "Personally, I do not agree with this. I think there is too much balancing consideration hereUeda has always been more protective of economic growth than of inflation." However, some strategists hold a more optimistic view on the yen's outlook. Masahiro Yamaguchi, head of investment research at SMBC Trust Bank, said: "Considering the risk that the press conference could trigger a sharp weakening of the yen, my impression is that Governor Ueda handled it well. Apart from the fact that two board members opposed the rate hike, the BOJ's stance looks basically unchanged from before. Ueda's explanation is consistent with the BOJ accelerating the pace of rate hikes to once every three months, so there is no need to change expectations for another rate hike in December this year. In that sense, I do not expect the yen to remain in a sustained depreciation trend." "The impact on bonds and equities may also be limited. For the bond market, the next focus will be assessing the government's fiscal stance after the cabinet reshuffle." In addition to Ueda's dovish remarks, two BOJ Monetary Policy Committee members voting against the rate hike on Friday also raised concerns that the central bank is "not hawkish enough." It is reported that among the nine policy board members, Toichiro Asada and Ayano Sato cast opposing votes. Asada's reason was that the CPI increase excluding fresh food was below 2% and "the economic situation is not necessarily strong"; Ayano Sato believed that the economic and price situation had not accelerated significantly and that "raising rates at this time is not appropriate." In response, Masahiko Loo, senior fixed income strategist at State Street Investment Management, said: "The market should not overreact to the two members' dissent. These two members come from the more dovish wing of the committee, while the majority still firmly supports Ueda's policy normalization path. More importantly, Ueda's refusal to rule out future policy action further reinforces the message that action remains possible at every meeting." "For the foreign exchange market, dollar-yen remains a 'sell on rallies' trade, especially near the 160 level. The medium-term path will be determined more by three structural forcesrising domestic yields as the BOJ advances policy normalization; shifts in institutional fund flows as Japanese assets become investment-attractive again; and continued inflows of AI-related investment into Japan." "Together, these factors support a gradual reallocation of capital to Japan and further reinforce the broader 'Japan Is Back' narrative." For the yen, the important 160-yen-per-dollar threshold has returned to investors' view. If investors conclude that the BOJ's tightening pace will struggle to keep up with the Fed, dollar-yen could climb back toward 160. Given that the 25-basis-point hike had already been largely priced in and the BOJ's communication was interpreted as dovish, this risk is particularly prominent. The yen's latest slide has also put intervention risk back in focus. Japan and the United States carried out their first coordinated yen-buying operation since 1998 this summer. Officials emphasized the speed and disorderliness of exchange-rate moves rather than any specific level, but another approach toward 160 could test their tolerance. The head of strategy at Astris Advisory Japan said: "If the yen comes under pressure again and falls below 160 per dollar, we should expect Japan and the United States to intervene in the foreign exchange market again."