UBS maintains its medium-term bearish outlook on dollar-yen pair after BOJ rate decision

At its most recent meeting, the Bank of Japan (BOJ) maintained its interest rate at 0.5%, citing continued uncertainty regarding the country's economic growth prospects. This decision was widely expected by market participants and stabilized the dollar-yen exchange rate, according to Investing.com.

Yields on long-term Japanese government bonds did not change after the central bank's announcement.

UBS analysts say the BOJ is taking a cautious approach to tightening monetary policy. Experts believe the catalyst for narrowing the interest rate differential between the US and Japan, as well as weakening the dollar against the yen, will likely be the Fed's expected reduction in borrowing costs at the end of this year.

Hedging flows from local asset managers and exporters should provide additional support for the Japanese currency. UBS notes that these processes usually accelerate when expectations of yen appreciation strengthen. Given these factors, UBS maintains its bearish medium-term outlook for the dollar-yen pair and recommends selling the US currency.