Japanese Yen Slips as BoJ Struggles with Policy Normalization

Japanese Yen Slips as BoJ Struggles with Policy Normalization

JPY underperforms as BoJ policymakers show hesitation

The Japanese Yen (JPY) fell by 0.2% against the US Dollar (USD) on Wednesday, becoming the worst-performing currency among G10 peers, as new reports suggest the Bank of Japan (BoJ) is divided on how to proceed with tapering and unwinding its unconventional monetary policies.

BoJ Discord Sparks Yen Weakness

According to a Scotiabank note, the JPY’s decline is being driven by "news of deliberations in the BoJ and apparent absence of a strong consensus on the question of unconventional (balance sheet) normalization and tapering speed next year."

This internal division contrasts sharply with last week’s hawkish remarks from BoJ Governor Kazuo Ueda, who had signaled the potential for both interest rate hikes and quantitative tightening as part of the bank’s normalization plans.

Market Reaction

Investors are now adjusting their expectations, questioning the timing and extent of BoJ tightening. The USD/JPY pair has edged higher in response, while other G10 currencies have gained modestly against the USD, leaving the Yen as the clear laggard.

Traders will be closely watching upcoming BoJ meetings and public remarks for signs of clarity or unity within the central bank on Japan’s monetary policy outlook.

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