Japanese Yen: BoJ tightening and intervention risks – Rabobank

Rabobank’s Senior FX Strategist Jane Foley discusses USD/JPY’s sharp pullback after comments from PM Takaichi and Bank of Japan (BoJ) Governor Ueda. Foley highlights renewed FX intervention risks, a still-firm US Dollar (USD) and speculation over a June BoJ rate hike. Rabobank maintains a 6‑month forecast for USD/JPY at 155, assuming progressive BoJ tightening this year.

Make or break near 160 against US Dollar

"USD/JPY dropped back sharply this morning as PM Takaichi spoke in parliament. She commented that her government will deepen international cooperation on foreign exchange, including with the US. She also stated that the government will take appropriate steps on FX as needed at any time, which sharpened fears that another round of FX intervention could be imminent."

"Despite this, USD/JPY has returned to within a whisker of the psychologically important 160 level this week. The firmer tone of the USD partly explains the move."

"This was widely expected to either make or break speculation of a June 16 BoJ rate hike and Ueda’s hawkish takeaways today will likely help keep USD/JPY from breaching the 160 level in the immediate term. Rabo’s forecast of a move back to USD/JPY 155 on a 6-month view assumes progressive policy tightening by the BoJ this year."

"For this reason, we expect that in order to afford the JPY decent support that Ueda will likely have to strengthen expectations of another rate hike this year, even if a June move is forthcoming."

"Given market expectations that the Fed could remove its easing bias, the BoJ and the MoF could struggle to hold USD/JPY below the 160 in the coming weeks. This predicament suggests that the Japanese government is likely to continue to threaten further FX intervention."

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