Hawkish remarks from the Bank of Japan briefly boost the yen, but upside is limited under the pressure of a strong US dollar

⑴ The hawkish remarks of Takata Hajime, a hawkish member of the Bank of Japan, once provided support for the yen, but the market's expectations for the Federal Reserve to maintain a hawkish stance are reversing the situation. The yen-dollar exchange rate may continue to consolidate within the 160 to 162 range for a longer period.⑵ Takata Hajime hinted that the Bank of Japan may raise rates by 50 basis points or carry out two consecutive rate hikes, a signal considered positive for the yen. However, as one of the few hawkish representatives within the central bank, his remarks should not be seen as a clear precursor of a policy shift.⑶ If the Bank of Japan takes action at the September meeting, it will mark an accelerated pace of monetary policy tightening. However, ING tends to believe that the central bank may prefer to wait until 2027, making further decisions only after domestic consumption shows clearer guidance.⑷ Although US Treasury Secretary Bessent may not welcome a strong dollar continuously suppressing the yen, it is still expected that the institutional value of the Federal Reserve's independence will be respected, meaning that the US-Japan interest rate differential is unlikely to narrow significantly in the short term, and the conditions for a yen trend reversal are not yet mature.