Japanese Yen: Intervention risks cap losses against US Dollar – OCBC
OCBC’s Sim Moh Siong and Christopher Wong highlight that September Bank of Japan (BoJ) hike odds have risen sharply, but the Japanese Yen (JPY) has reacted only modestly. They argue a sustained Yen recovery likely needs clearer commitment to faster policy normalisation.
OCBC analysts Sim Moh Siong and Christopher Wong emphasize that September Bank of Japan (BoJ) rate hike chances have increased significantly, yet the Japanese Yen (JPY) has only shown slight reaction. They believe a robust Yen recovery would necessitate a clearer indication of accelerated policy normalization. For the moment, they anticipate intervention risks to keep USD/JPY close to 160.
Bloomberg revealed that the Takaichi administration backs an early BoJ rate increase, raising market expectations of a September hike to 80%, up from 50% at the start of August. This shows growing consensus between the BoJ, which worries about inflationary pressures from a weak Yen, and the government, aiming to boost JPY-buying intervention's effectiveness.
Nonetheless, the Yen's response has been tepid. If the BoJ raises rates again in September, it would be its third increase in nine months and the quickest rate hike speed since Japan's asset bubble burst in 1989. However, it remains uncertain how much willingness the government has for more rate hikes after September or October.
A substantial and enduring Yen recovery would probably demand a stronger hint from the BoJ that policy normalization can speed up. For now, intervention risks should maintain USD/JPY around 160.
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