Japanese Yen: Policy risks support gains against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret observe USD/JPY trading near 159, with modest Japanese Yen (JPY) gains offering reassurance to the Ministry of Finance (MoF) after recent weakness. They highlight material efforts to counter Yen depreciation via coordinated Bank of Japan (BoJ) and Federal Reserve (Fed) actions. With BoJ considering a possible hike in the fall and Q2 GDP due next week, they flag policy commentary as key, seeing resistance above 159.50 and support just above 158.50.

MoF reassurance and BoJ hike risk

"The yen is up a modest 0.2% vs. the USD, trading in tandem with the EUR while showing relative underperformance against most of the G10 currencies."

"The modest gains are likely providing considerable reassurance to key officials at the Ministry of Finance, given ongoing concerns about the yen’s downward trajectory."

"Efforts to push back against JPY weakness have been material, with coordinated action from both the BoJ (on behalf of the MoF) and the Fed (on behalf of the US Treasury)."

"The BoJ outlook remains critical as policymakers consider the possibility of a hike this fall. Near-term domestic risk lies with the release of Q2 GDP data early next week, and we remain attentive to policymakers’ comments on their plans for near-term tightening."

"For USD/JPY, we see resistance above 159.50 and support just above 158.50."