Sell the news. Who would’ve thunk it?

That’s a humorous, colloquial and, I hope, rhetorical question when it comes to Friday’s post-BoJ yen weakness.

That is: Everyone should’ve expected Kazuo Ueda’s fully-priced rate hike to be met with a sell-the- news trade in the currency, because everyone knows he’s terrified of triggering another August 5, 2024 moment.

Maybe it’ll pare declines, but as the simple figure shows, the yen was on track for its worst day (i.e., USDJPY best day) since Sanae Takaichi won the LDP leadership race in October.

I’m writing here on the assumption that readers interested in BoJ policy decisions don’t need a refresher on the events that transpired in late-July and early-August of 2024. But assumptions are never safe, so here’s a quick recap.

The BoJ’s July 2024 rate hike (the second in four months) was the straw that broke the camel’s back for the yen carry trade. For a very long time, the yen was the most popular funder on Earth for obvious reasons. Then, all of a sudden, the central bank was hiking hawkishly. You couldn’t fund in yen for free anymore. That represented no less than an adjustment to the global market infrastructure.

Around the same time, the US economy was in the process of doing its post-pandemic summer seasonal “thing,” which is to say faking a slowdown. That weighed on the dollar at a time when a hawkish BoJ was inviting and encouraging yen strength. In the space of just four weeks that summer, USDJPY fell from nearly 161 to 144, a hugely destabilizing move.

As the chart reminds you, it all fell apart on August 5, 2024, when local stocks fell 12% in a single-session. No hyperbole needed: It was an honest-to-God crash. Black Monday.

The BoJ ended up apologizing for that, and a few other things besides. Two days later, while speaking to business leaders in Hakodate, influential BoJ deputy governor Shinichi Uchida acknowledged the bank’s indirect role in “a decline in stock prices worldwide,” even as he noted that jitters around the US economy were just as much to blame for a “rapid weakening” of the dollar.

“The yen has appreciated significantly, since large positions that had been built up on a weaker yen are being unwound,” Uchida said, on August 7, 2024. “Partly due to the correction of the yen’s depreciation, stock prices in Japan have declined to a greater extent than other economies.”

In the same remarks, Uchida said the BoJ would “maintain monetary easing with the current policy interest rate for the time being,” and that was pretty much that. The bank did hike again five months later (a move that didn’t age particularly well either in the context of Donald Trump’s subsequent tariff announcements), but they’ve been very cautious about things.

Long story short, you’re not going to get any more overtly hawkish hikes from the BoJ. They’ll fake hawkish hikes, but the yen won’t buy it. They tried a real hawkish hike and it dead-ended in a minor catastrophe. (To the extent catastrophes can be “minor.”)

Friday’s hike, the fourth under Ueda, took rates to 0.75%. Believe it or not, that’s the highest in three decades. Ueda flagged the upcoming move during a speech on December 1. Although the forward guidance tipped more hikes eventually, Ueda didn’t offer much in the way of a time table, nor did he offer anything new on the neutral rate in Japan, which the bank’s content to judge at somewhere between 1% and 2.5%.

With apologies, that range is useless even as useless ranges for neutral go. Imagine if the Fed said, “We judge neutral to be somewhere between 2.5% and 6%.” You can’t do anything with that.

Plus, the implication is that Friday’s hike puts the call rate in Japan just one additional 25bps upward adjustment away from doves’ estimate of neutral. That at least raises the specter that in the event the Japanese economy were to swoon, or inflation were to decelerate, the BoJ may be reluctant to deliver more than one more hike.

Note that analysts generally expect a once-every-six-months cadence from the BoJ. A lot can happen in six months, to say nothing of a year. So, it’s entirely possible this is the penultimate BoJ rate hike, or even the last one. And, as the bank’s always (always) keen to note, real rates in Japan remain very accommodative which here means deeply negative.

From a rates diff perspective, there’s not a lot to like about this setup if you’re trading the currency. Yes, a Fed beholden to Trump’s going to be inclined to cut rates, but there’s damn near 250bps to make up at the short-end of the sovereign curve and that’s after 250bps of narrowing and with Japanese yields the highest in nearly two decades.

Consider also that the ECB’s done cutting and after Thursday’s move, additional BoE cuts aren’t guaranteed either. Bottom line: A simplistic, fundamentals-based case for the yen isn’t especially easy to make.

About the best you can do is argue that at ~160 dollar-yen, the finance ministry will intervene. Or that something unrelated to Japanese monetary policy will break somewhere in the world and the accompanying fear will drive a safe haven bid for the yen. (But even there, recent evidence suggests investors will take the franc instead.)

All of that’s to saying nothing of the fact that Takaichi doesn’t want additional monetary policy tightening, and only blessed this month’s hike to put a floor under the yen. (Obviously she doesn’t get a direct vote on policy, but there’s a lot of coordination in Japan. And don’t forget that Takaichi’s spirit animal is Shinzo Abe.)

The new policy statement said it’s “highly likely” that the virtuous feedback loop between wage gains and desirable consumer price increases (i.e., moderate inflation) will continue in Japan, and if it does, more hikes are on the cards.

Maybe that’s true maybe it isn’t, but I gotta say: Ueda didn’t sound convinced of it during Friday’s presser. “We’ll keep making appropriate decisions at each policy meeting,” he said. “The pace at which we adjust our rate will depend on the state of the economy and prices.”