Japanese Yen: BoJ policy story having little effect – ING
ING’s Chris Turner notes that despite sharp moves in Japanese money markets, the Japanese Yen is not finding lasting support. Markets now price a high probability of a Bank of Japan hike in September, narrowing US–Japan swap differentials, yet USD/JPY remains elevated as carry trades persist.
The Japanese Yen continues to struggle for lasting support despite significant fluctuations in money markets, according to ING's Chris Turner. Markets now indicate a high likelihood of a Bank of Japan rate hike in September, which has caused the US-Japan swap differentials to narrow by nearly 40 basis points since mid-July. This development contrasts with the yen's lack of support, making USD/JPY remain elevated.
Turner expects USD/JPY to potentially fall below 158 if the Federal Reserve maintains unchanged interest rates. The yen's funding risks are increasing, and if the Fed rates stay unchanged in September, USD/JPY may indeed trade below 158. Should this happen, there could be a surge in short CHF/JPY positions to capitalize on the yen's strength.
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