The recent policy gathering by the Bank of Japan delivered little support for the yen, effectively reopening the door for global carry trades. Although the central bank followed through on the tightening move that US Treasury Secretary Scott Bessent had advocated for—and which traders had already priced in—multiple headwinds are weighing on the currency. The rate hike decision faced opposition from two board members, with no calls for a more aggressive increase, while the accompanying statement, despite pledging further hikes, omitted any specific timeline, thus failing to signal a sense of urgency.

With the benchmark rate still well below what is considered neutral, the yen's weakness is likely to persist unless the central bank embarks on a series of rate increases. Among the G10 currencies, only the Swiss franc currently offers a lower yield, with the Swiss National Bank set to meet next week. Should it reiterate its inclination to hold rates at zero, volatility in the two primary funding currencies is expected to remain subdued.

Following a dense schedule of central bank meetings, Brent crude is on track for its first weekly decline this month, offering a respite to global bonds that had been deeply oversold. The Bank of England's decision to pause its bond sales, halting the disposal of securities maturing in 2049 and beyond, has provided a lift to long-dated UK gilts. The 30-year gilt stands to gain notably from this move, and while the upcoming autumn budget may temper the upside, Thursday's rally is likely to extend.