07:12 AM EDT, 10/03/2025 (MT Newswires) -- There have been only modest foreign exchange moves so far on Friday, but amongst these modest moves, the yen (JPY) is the underperformer, said MUFG.

The slightly weaker yen is down to the comments from Bank of Japan Governor Kazuo Ueda. The governor spoke earlier Friday at a business leaders' meeting and then again at a press conference. There is some disappointment that Ueda didn't give a clear signal on the potential for a rate hike at the meeting on Oct. 30, wrote the bank in a note to clients.

However, a strong signal from Ueda on Friday was never a likely prospect ahead of the LDP leadership election on Saturday, stated MUFG. But his comments certainly included what the bank would class as indicating October is a live meeting.

Kazuo stated that the Tankan report this week supported the BoJ's views on the outlook for the economy. In the earlier speech, Ueda stated that price increases "could last longer than expected" while adding that "prolonged inflation" could weigh on consumer spending. As expected, Ueda also stated that whoever becomes the new Japanese prime minister, the BoJ would continue to pursue its goal of achieving price stability.

The pricing for an October rate hike has drifted a little lower -- from 16bps on Thursday to 14bps now, pointed out the bank. With no signal of an October move, that's understandable, but the BoJ has ample time to shift current pricing more closely to a fully priced market and that, MUFG thinks, is something that is likely to happen.

The BoJ will be conscious of the fact that the FOMC could well be cutting the day before its meeting. A similar scenario last year in July -- a dovish FOMC meeting signalling cuts were coming and a BoJ rate hike -- triggered huge turmoil in Japanese equities and foreign exchange, added the bank.

The BoJ won't want that to happen and, as such, the bank predicts that after the LDP leadership election -- MUFG assumes Shinjiro Koizumi wins, who would be more supportive of a BoJ rate hike -- that the BoJ will provide a clearer message which would help to push USD/JPY lower, especially if the shutdown in the United States drags on.