USD/JPY Pressured as Yen Rallies on Growing BOJ Rate Hike Bets

The Japanese yen is broadly firmer against major peers, with traders lifting expectations for a Bank of Japan rate hike and driving gains versus the euro, Swiss franc and the US dollar. Sentiment has turned notably more constructive on the currency after months of underperformance, with speculative positioning shifting away from the entrenched short-yen bias that dominated much of the year. The driver is policy convergence: the BOJ is seen tightening further while the Federal Reserve and European Central Bank are viewed as closer to easing, narrowing the yield gap that has underpinned carry trades in USD/JPY, EUR/JPY and CHF/JPY. Rising Japanese government bond yields reinforce the repricing, raising the cost of funding yen shorts. For USD/JPY, a sustained unwind of carry positions typically produces sharp, fast downside as leveraged longs are forced out. Traders should watch BOJ communication and Japanese wage and inflation prints for confirmation, while monitoring EUR/JPY and GBP/JPY crosses, which historically amplify yen strength during positioning washouts.