📘 BOJ Rate-Hike Speculation Drives Yen Strength, But London Short-Covering Pauses the Decline

Markets Enter “Wait-and-See Mode” Ahead of FOMC, PCE and North American Data

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■ 1. Tokyo Session: BOJ December Hike Speculation Remains the Dominant Theme

On Monday afternoon, Reuters reported—citing government sources—that:

“The BOJ is highly likely to raise rates in December, and the government is prepared to accept it.”

USD/JPY reacted with a ~30-pip drop, though the decline lacked momentum and failed to break the previous day’s lows.

The market has largely priced in the December hike scenario due to:

• Governor Ueda’s remark: “Rate hikes will be discussed at the December meeting.”

• Several days of strengthening hike expectations

• Now, additional confirmation via “government approval” reports

👉 The yen continues to appreciate, but the move reflects accumulated pricing, not fresh shock.
How overseas players will digest the news becomes the next key factor.

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■ 2. London Open: Yen Buying Stalls; USD/JPY Rebounds into the 155s

During Tokyo hours, USD/JPY fell to 154.35–154.55, testing but not breaking the previous low (154.51).

Once London traders stepped in, flows reversed:
USD/JPY surged back to 155.40–155.99 alongside a rebound in U.S. yields.

Key dynamics:

• Yen buying alone is no longer sufficient to push USD/JPY into new lows

• Positioning is skewed; short-covering occurs easily

• The yen-bullish bias remains, but price action is increasingly two-way

👉 A complex structure: “yen-buying momentum” vs. “technical rebound pressure.”

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■ 3. The Day Before FOMC — Dollar Shows No Clear Direction

The market has fully priced in a 25bp December rate cut, so the critical issue is:

How many rate cuts will the Fed signal for 2026?

Powell’s press conference is equally crucial.
Any dovish or hawkish nuance could spark volatility.

👉 FOMC is the “pivot point” for USD/JPY. A range breakout is almost guaranteed.

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■ 4. Tonight’s U.S. Data: PCE Is “Stale,” but Still Market-Relevant

Because of the U.S. government shutdown, the upcoming PCE release covers September data, making it somewhat outdated.

Forecasts:

• Headline PCE: 2.8%

• Core PCE: 2.8%

A major surprise is unlikely.

However—with 87% probability priced in for a December cut—
➡ Even a slightly weaker PCE could reignite USD selling.

Other important data:

• Initial jobless claims

• Challenger job cuts

• Personal income & spending

• Univ. of Michigan sentiment

👉 Any clear signs of labor-market deterioration could weaken USD ahead of FOMC.

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■ 5. Europe & UK: EUR Remains Firm; GBP Heavy on Fiscal Concerns

◎ EUR/USD

• Touched 1.1677

• Lifted by short-covering from yen strength and stronger European PMIs

◎ GBP/USD

• Climbed to 1.3359

• Gains capped by uncertainty surrounding the UK’s tax-raising policies

• Estimate of UK 30-year yields approaching 6% adds pressure

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■ 6. London Market Snapshot: USD Rebounds on Higher U.S. Yields

U.S. 10-year yields:
➡ 4.12% → 4.14%+

This generated broad USD short-covering:

• USD/JPY: 155.46

• EUR/USD: Pulled back into the 1.1650 zone

• GBP/USD: Softened to 1.3319

Equities lacked direction; FX moved mostly in response to yields.

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■ 7. Today’s Key Events (Summary)

◇ Europe

• Sweden CPI

• Switzerland employment, PMI

• UK Construction PMI

• Eurozone retail sales

◇ North America (high importance)

• Initial jobless claims

• Challenger job cuts

• PCE (main event)

• Canada employment

• Michigan sentiment (flash)

◇ Central Bank Speakers

• ECB: Lane, de Guindos, Cipollone

• BOE: Multiple members

• Fed: Bowman (no policy comments due to blackout rules)

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■ 8. FX Levels (London Open)

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■ 9. Bottom Line: Direction Will Not Emerge Until After FOMC

✔ Yen-bullish bias remains, but the downside is hard to extend
✔ Dollar direction frozen until the FOMC outcome
✔ PCE and labor data could trigger pre-FOMC USD selling

👉 The market is in a “calm surface with underlying tension” state.
A decisive breakout is highly likely after the FOMC meeting concludes.