Japanese Yen keeps sliding as Tokyo repeats its warning and holds fire

Finance Minister Katayama cautioned on Thursday that the principles behind the joint US-Japan intervention remain in effect, with USD/JPY reaching 159.00, its peak since early September. The currency pair is now trading just under 159.00, poised for a fifth consecutive increase. In a single week, the Bank of Japan (BoJ) has raised its policy rate, and Japanese authorities have cross-checked rates with dealers, all while Katayama has reiterated her caution, leading to a higher USD/JPY value compared to before any of these actions.

On Friday, September 18, Japanese authorities checked rates with overseas dealers, a common precursor to intervention. Due to the national holiday from Monday to Wednesday, Thursday marked the first Japanese trading session since the rate check on September 18. Japan had not purchased Yen since July 31, in conjunction with the US, following USD/JPY breaching 163.00, and again on April 30 after surpassing 160.50.

The BoJ increased its policy rate to 1.25% on September 18, the highest level since 1995, and the Yen subsequently declined. BoJ Governor Ueda stated that financial conditions would remain accommodative, with two board members opposing the rate hike, suggesting that another increase is not imminent. The Federal Reserve raised its rate range to 3.75%-4.00% two days prior without dissent, and futures suggest another quarter-point increase on October 28.

Japan's highest interest rate in three decades left the gap between US rates unchanged. The BoJ will release minutes from its July 30-31 meeting on Sunday at 23:50 GMT, revealing board member Takata as the sole vote in favor of the 1.25% rate, adopted seven weeks later. August retail sales are due on Tuesday at 23:50 GMT, followed by the quarterly Tankan survey of large manufacturers on Wednesday, September 30, at 23:50 GMT, with an outlook of 17, alongside a summary of opinions from the September meeting.

Japan's Consumer Price Index (CPI) for September will be released on Thursday, October 1, at 23:30 GMT, following a 1.9% YoY increase in August and a 1.8% rise excluding fresh food. A weaker reading would complicate the case for further BoJ rate hikes in 2024. On the US side, August inflation, measured by the Personal Consumption Expenditures (PCE) index, is expected on September 30, followed by the Nonfarm Payrolls (NFP) report on October 2, which will include average hourly earnings, which grew by 3.1% YoY in August.