BoJ May Hike Rates in June, Signaling a Medium- to Long-Term Turning Point for the Yen

Summary:

The Bank of Japan is reportedly considering pausing the reduction of its government bond purchases from the next fiscal year while simultaneously preparing to raise interest rates in June.

BUY GBPJPY

EXP

TRADING

214.677

Entry Price

216.000

212.900

214.493 -0.123 -0.06%

0.0

Pips

Flat

212.900

Exit Price

214.677

Entry Price

216.000

Fundamentals

According to sources familiar with the matter, the Bank of Japan is considering maintaining its current pace of Japanese government bond (JGB) purchases from the next fiscal year. However, the decision is unlikely to be straightforward, as policymakers remain divided. Some board members favor prioritizing market stability, while others believe the central bank should continue gradually reducing bond purchases to shrink its massive balance sheet.

At its June policy meeting, the BoJ will review its current bond-buying reduction plan, which runs through March next year, and formulate a new framework for fiscal 2027 and beyond. Four sources familiar with the Bank's thinking indicated that policymakers are increasingly inclined to pause further reductions in bond purchases, citing the progress already made in balance sheet normalization.

One source noted that the BoJ has sufficient room to halt additional tapering because its bond holdings are already declining naturally as existing securities mature. Three other sources expressed similar views.

The sources also suggested that the BoJ may abandon its practice of setting bond-purchase reduction plans annually and instead adopt an open-ended framework, committing to purchase approximately ¥2.1 trillion worth of bonds per month on an ongoing basis.

Beyond quantitative tightening considerations, Nikkei reported that the BoJ is preparing to raise its policy rate from the current 0.75% to 1.00% at its June meeting in response to rising inflation risks.

The implications for the Japanese yen are likely to be "short-term volatility and position cleansing, followed by the establishment of a long-term valuation floor and a subsequent recovery."

The BoJ appears to be implementing a dual-track strategy: stabilizing the bond market by pausing balance-sheet reduction while simultaneously combating inflation and defending the currency through aggressive rate hikes. Should the anticipated 1.00% rate increase materialize, the yen's prolonged period of extreme weakness could finally reach a meaningful turning point.

BoJ May Hike Rates in June, Signaling a Medium- to Long-Term Turning Point for the Yen_1

Technical Analysis

GBP/JPY rebounded on Tuesday as expected. The current recovery is likely to retest the previous selling zone around 216.00 before entering another phase of consolidation.

Should bulls successfully break above the previous high at 216.62, the medium-term uptrend would likely remain intact and extend further.

On the downside, a break below 212.92 would expose the pair to renewed tests of the 211.25 and 210.42 support zones.

Trading Recommendation

Trade Direction: Buy

Entry Price: 214.35

Target Price: 216.00

Stop Loss: 212.90

Valid Until: 2026-07-08 23:55

Support Levels: 213.00, 213.62, 211.82

Resistance Levels: 214.67, 215.36, 216.09

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