JPY Weekly 27 July 2026

JPY Weekly JPY Weekly TEPPEI INO Tokyo Head of GMR USD/JPY: US rate-hike expectations Global Markets Research, Tokyo T: persist, what next for the BOJ? E: 27 July 2026 MUFG Bank (Original Japanese report issued on 24 July 2026 at 17 pm Tokyo time.) A member of MUFG, a global financial group

The USD/JPY opened the week at 162.53. The pair traded without clear direction Week in review below 162.50 on 20 July, when Japanese markets were closed for a holiday. It remained broadly flat during Tokyo trading on 21 July before the dollar strengthened as European participants entered the market, pushing the pair above 163. The pair became top-heavy in the low 163 range, and reports on 22 July that the BOJ could accelerate its rate hikes briefly pushed it back below 163. However, higher crude oil futures amid escalating tensions in the Middle East left underlying dollar-buying and yen-selling pressure intact. The pair accelerated higher again during overseas trading on 23 July and approached 164. The US Treasury's Foreign Exchange Report described the yen as substantially undervalued, but the market reaction was limited. At the time of writing, the pair was trading above 163.50 (Figure 1). G10 currency markets have been characterized this week by rising oil prices amid escalating tensions in the Middle East, a stronger dollar as expectations of further US rate hikes increased, and gains in commodity currencies (Figure 2).

FIGURE 1: USD/JPY FIGURE 2: MAJOR CURRENCIES' RATE OF CHANGE VS USD THIS WEEK Jul-24 Jan-25 Jul-25 Jan-26 Jul-26 （%） NOK CNY AUD CAD EUR JPY GBP NZD CHF Note: As at 14:00 JST on 24 July Note: As at 14:00 JST on 24 July Source: EBS, Refinitiv, MUFG Source: Bloomberg, MUFG

The FOMC will announce its policy decision on 29 July, followed by the BOJ on 31 FOMC increasingly seen as a live July. The market consensus is for both central banks to leave policy rates unchanged, meeting and this is also our view. Expectations for the FOMC have nevertheless continued to shift this week. Some reports have argued that a rate hike cannot be ruled out, pushing the implied probability of a hike at this meeting from just above 10% last week to around 35%. The Fed has been in its blackout period throughout this shift, leaving Chair Kevin Warsh and other senior officials unable to comment. In the past, the Chair and other top officials would effectively signal the likely decision before the blackout period. A major change in circumstances would then prompt the Fed to steer market expectations back on course through the media. However, under Chair Warsh, the Fed has begun rethinking how it communicates with markets. This has raised suspicions that it could raise rates without providing an advance signal. Oil prices rose this week as tensions in the Middle East intensified. US gasoline prices

have also climbed above the psychologically important level of USD4 per gallon. Initial jobless claims meanwhile fell to their lowest level since 1969. These developments have strengthened expectations of a rate hike from both an inflation and employment perspective. The ECB left its policy rates unchanged this week, apparently choosing to assess the highly volatile situation in the Middle East before taking further action. For the Fed, higher oil prices are not central to the immediate debate over whether another rate hike is necessary. They clearly increase upside risks to inflation, but higher energy prices can also weaken the economy and reduce core inflation. We therefore expect the FOMC to remain on hold. Chair Warsh is nevertheless likely to reiterate his vigilance against inflation at the press conference. Over the coming week, it is therefore difficult to envisage the dollar weakening as expectations of an early rate hike rapidly unwind.

The BOJ can make its policy decision after seeing the FOMC outcome and the Basic Policy approved market reaction. Some reports have suggested that the BOJ may consider accelerating the pace of rate hikes in response to the yen's recent weakness. However, markets were still pricing in only around a five percent probability of a hike at this meeting at the time of writing. The sharp rise in crude oil futures has…