Japanese Yen: Hawkish BoJ signals versus Fed risk – Rabobank

Rabobank’s Senior FX Strategist Jane Foley discusses Japanese Yen (JPY) prospects, focusing on USD/JPY. Foley highlight that intervention by the Ministry of Finance (MoF) alone is unlikely to change the pair’s direction without improved Japanese fundamentals. The report stresses the need for a more hawkish Bank of Japan (BoJ), fiscal reassurances, and a less hawkish Federal Reserve (Fed) to support JPY and their USD/JPY 159 three‑month forecast.

BoJ stance, MoF tactics and Fed risk

"Over the past few weeks the market has been debating whether the MoF is deliberating over a change of tactics with respect to how it can support the JPY. That said, irrespective of how and when intervention may be deployed, it is unlikely on its own to change the direction of a currency pair. For that to happen, the fundamentals (or the perception of fundamentals) will also have to alter."

"We have argued for a while that if the JPY has any hope of strengthening in the coming months, further reassurances on the fiscal front will be needed and the BoJ will have to step up its hawkishness and signal to the market that the pace of rate hikes could be accelerated. This morning newswires have reported that the BoJ is open to raising rates faster than every six months. If the JPY does strengthen on the back of hawkish BoJ signals next week, that could provide the MoF an opener for further intervention."

"However, the July 31 BoJ meeting comes just two days after the next Fed meeting. A hawkish Fed and a stronger USD will make the task of pushing USD/JPY lower all the more difficult to achieve."

"We admit that our forecast of a move to USD/JPY159 on a 3-month view currently looks optimistic since it would likely need various factors to come together, including a less hawkish Fed. That said, an important first step would be a hawkish BoJ next week."

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