Japanese Yen: BoJ tightening key to recovery against US Dollar - OCBC
OCBC’s Sim Moh Siong and Christopher Wong highlight that Japan’s recent FX intervention, backed by United States (US) involvement, has not fully reversed Japanese Yen (JPY) weakness, with USD/JPY near 159 after retracing much of its post-intervention drop.
OCBC analysts Sim Moh Siong and Christopher Wong report that Japan's recent foreign exchange intervention, with support from the United States, has not fully restored the Japanese Yen's strength, with USD/JPY hovering near 159 after recovering from its post-intervention lows. They maintain their USD/JPY end-2026 forecast at 163, but suggest a more aggressive Bank of Japan (BoJ) rate hike path and increased domestic capital flows back into Japanese assets could spur a more substantial Yen recovery.
The success of Japan's intervention, potentially larger in scale and stronger in signaling power due to US involvement, remains uncertain. Both Japan and the US appear prepared to intervene again if necessary to stabilize the Yen. The coordinated intervention has raised expectations for earlier or more rapid BoJ tightening, which has helped stabilize long-end Japanese government bond yields.
However, a stable Yen might reduce the urgency for BoJ rate hikes. With a 60% probability of a September rate hike, if the BoJ maintains current rates, it could reignite upward pressure on USD/JPY and long-end JGB yields. Conversely, a September rate increase, coupled with evidence of Japanese investors realigning capital back into domestic assets, could facilitate a more sustained Yen recovery and provide lasting relief for long-end JGB yields.
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