Hawkish BoJ Minutes point to possible December rate rise, lifting Japanese Yen

• With inflation approaching the 2% target, BoJ Meeting Minutes confirm policymakers' support for rate increases, lifting sentiment towards JPY.
• Energy costs and the US Dollar came under pressure as crude prices fell following Trump's remarks on the Middle East.
• Strong US Nonfarm Payrolls and 78%+ odds of a December Fed rate rise continue to limit USD/JPY losses.

At around 158.00 in Monday's European session, USD/JPY is retreating following modest gains the day before. Supporting the Japanese Yen (JPY), Bank of Japan (BoJ) Meeting Minutes signal policymakers' readiness to step up monetary tightening, leaving the currency pair under pressure.

Although the BoJ left interest rates unchanged at its last meeting, its stated commitment to containing inflationary risks reinforced market expectations of a December increase. Minutes from the September meeting showed broad support among policymakers for further rate rises as underlying inflation approaches the central bank's 2% target.

Former BoJ chief economist Seisaku Kameda echoed that hawkish message. He said the central bank was likely to raise rates in December and lift borrowing costs further towards 2% next year to contain persistent price pressures.

Yen attracts safe-haven demand as Dollar loses out

According to strategists at ABN Amro, the recent shift away from risk has strengthened the Yen's standing as a safe haven. As investors sought defensive currency exposure, they noted that “haven demand favoured the JPY over the USD”.

Lower energy prices are also weighing on the US Dollar (USD), adding to the pressure on USD/JPY. Oil prices retreated following US President Donald Trump's statement that further military action against Iran was "highly unlikely," provided progress continued on Iran's nuclear programme and the Strait of Hormuz stayed open. Trump also recognised that the unpopular Middle East conflict had earlier pushed up energy costs and contributed to recent Republican losses in the midterm elections.

Strong US labour market figures nevertheless limit the Greenback's downside, having strengthened expectations of further monetary tightening. The CME FedWatch tool puts the market-implied probability of a 25-basis-point rate increase at the December Federal Open Market Committee (FOMC) meeting above 78%, following a sharp rise. Supporting that hawkish outlook, October Nonfarm Payrolls (NFP) showed an increase of 165,000 jobs, well above the consensus forecast of 65,000 and following September's revised figure of 60,000. The Unemployment Rate also fell to 4.1%, below the 4.2% forecast. For clearer signals on the Federal Reserve's policy path, investors now turn to Tuesday's Consumer Price Index (CPI) release and Friday's Producer Price Index (PPI) report.