📝 Intervention Likely to Discourage JPY Shorts: MUFG Strategy

While the EUR and GBP have fallen to fresh lows against the USD over the past week, the JPY has remained relatively more stable supported by the heightened risk of intervention from Japan. It has helped to keep USD/JPY trading close to the 148.00- level even as US yields hit fresh cyclical highs and the BoJ choose not to push back more strongly against JPY weakness. At today’s policy meeting the BoJ left their policy settings unchanged as widely expected but the comments from Governor Ueda in the accompanying press conference were non-committal over plans to tighten policy further. He stated only that the BoJ will mull adjusting policy if the price goal is in sight although he can’t say when that will happen. He does not believe that that the distance to ending negative rates has changed much. The tone of the comments suggests that Governor Ueda was keen not to further encourage market participants to bring forward expectations for the timing of the first rate hike. There is currently around 10bps of BoJ hikes priced in by Q1 of next year. The lack of pushback from the BoJ leaves the JPY vulnerable to further weakness heading into next week, and places the onus more on the Japanese government if they want to prevent/slow the pace of JPY weakness. Comments from Prime Minister Kishida and Finance Minister Suzuki ahead of the BoJ’s policy meeting highlight that the risk of intervention to support the JPY remains elevated. They both stated that they would take necessary action against excessive currency moves without excluding any option. - MUFG Strategy