Japanese Yen gains against USD after hawkish BoJ hold; Ueda's press conference in focus

• A second consecutive day of selling weighs on USD/JPY as several negative drivers converge.
• December rate-hike expectations gain support from strong Tokyo CPI and the BoJ’s hawkish outlook, lifting the JPY.
• Lower US bond yields and hopes for diplomacy with Iran weigh on the USD and USD/JPY.

USD/JPY slips further below the mid-157.00s. The pair extends its decline to a third consecutive day in Friday’s Asian session after the closely watched Bank of Japan (BoJ) decision.

An 8-1 vote kept the BoJ’s policy rate at 1.25%, as expected. Takata dissented, favouring an increase. The accompanying statement said core inflation was likely to remain close to levels consistent with the price target, while price risks were still skewed to the upside. Together with the strong Tokyo CPI figures published earlier today, this reinforces market expectations of an imminent December rate increase. The Japanese Yen (JPY) receives modest support, putting pressure on USD/JPY.

Hopes of a diplomatic settlement to end the US-Iran war continue to fuel selling in the US Dollar (USD). Falling US bond yields also compress the US-Japan interest rate differential, giving the lower-yielding JPY further support and adding to pressure on the Greenback. These factors strengthen the case for additional USD/JPY losses. Bears, however, are holding off on fresh positions until BoJ Governor Kazuo Ueda speaks at the post-meeting press conference.