Japanese Yen: Policy pressure and FX path – Rabobank

Rabobank’s Jane Foley examines Japanese Yen (JPY) weakness amid Prime Minister Sanae Takaichi’s preference for low interest rates, US Treasury pressure on BoJ policy and recent coordinated FX intervention. Foley argues that inflation risks support further BoJ tightening, while another rate hike and renewed intervention could lift the Yen, with USD/JPY potentially trading in the 157–158 area over the next 3–6 months.

BoJ pressure and Yen outlook

“Yesterday he raised the pressure on the BoJ even further, stating that he believes that the BoJ will “do the right thing” on monetary policy, and signalling a strong chance of a rate hike later this month.”

“The US Treasury joined Japan’s Ministry of Finance in late July in a round of concerted intervention in support of the JPY.”

“It is not just US treasury yields that have been rising however, JGB yields have also been on the rise on the back of supply and inflation concerns.”

“The PM’s reputation as a fiscal dove combined with her previously spoken preference for low interest rates has undermined the JPY and sparked speculation that the government has been leaning on the BoJ not to raise rates.”

“The presence of tight labour market conditions and a resilient economy combined with elevated oil prices and a weak JPY all increase the risk of second order price effects in Japan, suggesting there are good reasons for the BoJ to raise rates again.”

“In our view, fear of further FX intervention in support of the JPY coupled with the prospect of a BoJ September rate hike suggests scope for USD/JPY to trade in the 158-157 area on a 3-to-6-month view.”