Japanese Yen: BoJ guidance and Fed surprise risk steer the yen – MUFG

MUFG’s Lee Hardman highlights that lower energy prices have eased pressure on Japanese policymakers and slowed USD/JPY’s climb below 164.00. Markets expect the Bank of Japan (BoJ) to keep rates unchanged but are focused on any hawkish signals on future hikes. Without clearer tightening guidance, the Japanese Yen (JPY) remains vulnerable, especially if the Federal Reserve (Fed) surprises hawkishly this week.

Yen vulnerable without BoJ hawkishness

"The drop in energy prices at the start of this week has brought some much-needed relief for Japanese policymakers and helped to slow upward momentum for USD/JPY which has held just below the 164.00-level since late last week."

"Bloomberg has reported that inflation concerns in Japan are having a negative impact on Prime Minister Takaichi’s popularity."

"Overall, the latest [poll] readings are still relatively high but do indicate that recent developments have had a negative impact. The government is currently considering whether to deliver a promised sales tax cut on food to help ease inflation pressures and aims to finalize its policy on the issue by early August."

"The BoJ are expected to leave rates on hold after hiking at the last meeting in June, but market participants will be watching closely to see if they provide any hawkish signals over future hikes."

"Bloomberg reported last week that the BoJ was open to a faster pace of rate hikes than every six months while adding that yen weakness was increasing upside inflation risks."

"Without hawkish guidance, the yen is vulnerable to further weakness especially if the Fed delivers a hawkish policy surprise this week."

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