Japanese Yen: Intervention risk counters trade pressure – MUFG

Bank of Japan (BoJ) officials judge underlying inflation to be close to target, while markets price in a December rate rise. MUFG’s Lee Hardman notes that the Japanese yen (JPY) remains confined to a narrow USD/JPY range above 158.00, as the risk of intervention and a weaker US dollar (USD) limit the pair’s upside. Higher domestic yields are supporting demand for JGBs, but a wider trade deficit driven by higher oil prices continues to weigh on the yen’s performance.

USD/JPY holds its range as trade pressures persist

"The yen has continued to trade in narrow range against the US dollar at just above the 158.00-level."

"The heightened risk of further intervention to support the yen is helping to prevent USD/JPY from moving higher in the near-term alongside the recent correction lower for the US dollar more broadly."

"There was no clear signal that the BoJ is considering raising rates again as soon as this month which is consistent with our view that the next hike will be delivered in December."

"Bloomberg reported evidence yesterday that rising yields in Japan are helping to attract more domestic demand for government bonds."

"The wider trade deficit for Japan due to the negative terms of trade shock from higher energy prices remains a headwind for yen performance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)