Synopsis:

The Japanese yen weakened after the Bank of Japan's April policy update, where it struck a more cautious tone on future rate hikes. MUFG notes a paring back of long JPY positions, pushing USD/JPY above 144.50.

Key Points:

• Policy Decision: BoJ left rates unchanged at 0.50%, maintaining its current stance amid growing economic uncertainty.

• Revised Projections:

  • GDP growth forecasts were lowered to 0.5% (FY2025) and 0.7% (FY2026).

  • Core inflation was revised down to 2.2% (FY2025) and 1.9% (FY2027), closer to the BoJ’s long-term target.

• Forward Guidance: The BoJ maintained language suggesting it may continue raising rates, but only if economic conditions align with its projections.

• Market Reaction: The yen sold off post-decision, with long JPY positions being reduced, pushing USD/JPY up from the April lows near 139.89.

Conclusion:

While the BoJ kept the door open to future hikes, its more measured tone and lower growth/inflation projections have dampened expectations for aggressive tightening. MUFG sees the near-term JPY outlook softening, especially if broader market risk sentiment remains fragile.