As global central banks race to turn hawkish, the Bank of Japan risks falling behind, and the yen remains under sustained pressure.

Tuesday, as traders bet that Japanese policymakers will struggle to keep pace with the global central bank shift toward hawkishnesswhich the market believes will keep Japanese rates at a wide gap with major economiesthe yen came under pressure against the dollar. As of press time, the dollar was at 157.45 yen. 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 widely anticipated hike failed to lift the yen, which instead weakened. The market believes that comments by BOJ Governor Kazuo Ueda at a press conference disappointed investors who had hoped for more hawkish remarks. The yen's decline was limited by a holiday in Japan and market concerns that Japanese authorities might intervene in the foreign exchange market. There were earlier reports that Japan checked dollar-yen exchange rates on Friday, and such actions are often a precursor to the Japanese government preparing to step into the FX market. Apart from a rebound after reports that Japan checked exchange rates, the yen has been under pressure since the BOJ's rate hike on Friday. Asked about a 50-basis-point hike or consecutive 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 promptly 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 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." In addition to Ueda's not-hawkish-enough remarks, two members of the BOJ's monetary policy committee voted against the rate hike on Friday, also fueling 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 excluding fresh food rose less than 2% and "the economic situation is not necessarily strong"; Sato believed that the economy and price situation had not accelerated significantly and that "raising rates at this time is not appropriate." This contrasts with the Federal Reserve, which also raised rates last week, and differs from the stance of most other global central banks. After broadly signaling hawkishness, the market now expects these central banks to raise rates further this year. Current market pricing shows about a 30% probability that the BOJ will raise its benchmark short-term rate to 1.5% in October. Meanwhile, the market expects about a 55% probability that the Fed will raise rates by another 25 basis points in October, lifting the target range for the federal funds rate to 4% to 4.25%. Carlos Casanova, senior Asia economist at UBS Private Bank, said in a note to clients: "Unless the BOJ tightens policy faster than the Fed, the roughly 275-basis-point spread between the U.S. and Japan will continue to support yen-funded carry trades." "We expect the dollar-yen to rise to 160 by year-end, then ease modestly to 156 by mid-2027." Besides the yen, the New Zealand dollar is also expected to come under pressure. With New Zealand's interest rate at only 2.75%, clearly below other major economies, the kiwi has been hovering near multi-month lows, with NZD/USD at 0.5708. In addition, RBA Governor Michele Bullock is expected to signal hawkishness in a fireside chat later Tuesday. The market currently sees a 90% probability that the Reserve Bank of Australia will raise rates next week, which would be the country's fourth hike this year. ANZ analysts said in a report: "As high-yielding currencies benefit from more attractive carry returns, the kiwi's price action looks relatively weak." "Even if the market expects the RBNZ to raise rates about five more times, that is still not enough to bring the official cash rate (OCR) close to the U.S. federal funds rate or the RBA cash rate, both of which the market expects to continue rising."