Bank of Japan Rate Hike Signal Supports Yen, MUFG Says

07:07 AM EDT, 09/10/2025 (MT Newswires) -- The yen (JPY) was steadier against the US dollar overnight Tuesday after a pick-up in volatility in recent days, MUFG said.

USD/JPY climbed to 148.58 at the start of the week following Prime Minister Shigeru Ishiba's resignation over the weekend but dropped to 146.31 Tuesday after reports that the Bank of Japan may still raise rates this year despite political uncertainty.

Bloomberg reported BoJ officials believe it may be possible to raise rates again this year regardless of domestic political instability, as economic conditions have developed in line with expectations, according to people familiar with the matter.

The report added the United States-Japan trade deal has removed a key source of uncertainty, though the BoJ is still likely to keep rates on hold this month as officials assess the economic impact of higher tariffs. Some officials reportedly see a hike as early as October.

Examining incoming economic data will be critical in the coming months as the BoJ judges whether conditions are suitable for a rate hike.

MUFG said BoJ officials will also monitor signals from the new government, particularly what economic measures it might propose and how those steps could affect growth, inflation, and financial markets.

The LDP is set to vote Oct. 4 on the next leader in a full-scale election that includes Diet members and rank-and-file members.

The BoJ's next policy meeting is scheduled for Oct. 30, which could give it more clarity on the new political set-up before deciding on rates, MUFG said in a client note.

The bank added the BoJ is also closely watching the US economy to gauge whether a soft landing is achievable. Softer US employment data, combined with political uncertainty, has dampened market expectations for Japan's central bank to resume rate hikes sooner.

Following the Bloomberg report, Japan's rate market priced in a higher probability of a BoJ hike by year-end. About 15 basis points of increases are now seen by the December policy meeting, up from 12 bps on Monday after Ishiba's resignation, MUFG said.

Market participants remain skeptical about an October move, with only 8 bps priced in, according to the bank.

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