USD/JPY: Intervention threat caps upside – MUFG
MUFG’s Lee Hardman notes that Japanese Yen strength has persisted as USD/JPY pulled back toward 156.50 on Monday, with policymakers stepping up verbal warnings on currency weakness and signalling readiness to intervene.
Japanese Yen resilience has prevailed as USD/JPY retreated towards 156.50 on Monday, with central policymakers amplifying verbal warnings about currency weakness and hinting at the possibility of intervention. Cooperation with US officials and a faster Bank of Japan (BoJ) hiking cycle are seen as factors limiting additional USD/JPY gains, leading the Yen to outperform other G10 currencies in the short term.
Japanese officials' statements at the beginning of the week have consistently conveyed a strong determination to intervene to support the Yen, while also hinting at other policy adjustments to further bolster the currency, such as accelerating BoJ rate hikes amid pressure from the US. The BoJ has already expedited the pace of hikes this month (every three months) and indicated that a faster series of hikes is likely to persist into year-end.
We anticipate the next hike to be implemented in December, with the Japanese rate market assigning a higher-than-usual probability (~36%) to a consecutive hike next month. These recent developments are effectively capping further upside for USD/JPY, even as the US Dollar strengthens broadly.
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