JPY is outperforming in line with a recovery in 10-year JGB yields above 1.50%, BBH FX analysts report. 

Swaps market continues to imply less than 50bps of rate hikes

"Bank of Japan (BOJ) Governor Kazuo Ueda warned that 'the size of the BOJ's monetary base, balance sheet and current account balance is somewhat too big'. The comments are in line with the BOJ’s plan to shrink its holdings of JGBs in half to ¥3 trillion by Q1 2026."

"Ueda also signaled that the bar is high for the bank to dial-up the pace of rate hikes. Ueda reiterated he expects real wages and consumer spending to improve but also cautioned that Japan’s inflationary trend that removes temporary factors is still below the BOJ’s 2% inflation target." 

"As such, the BOJ is unlikely to tighten the policy by more than is currently priced which is a headwind for JPY. The swaps market continues to imply less than 50bps of rate hikes over the next twelve months."