Japanese Yen: Stronger yen driven by fundamentals – MUFG

FXStreet Insights Team FXStreet

MUFG’s Lee Hardman notes that the Japanese Yen (JPY) has strengthened sharply, pushing USD/JPY back towards the 155.00 support level that has held several times this year. Hardman highlights that this move appears fundamentally driven rather than intervention-led, with markets pricing faster Bank of Japan (BoJ) tightening and a likely rate hike this month. Speculation over GPIF reallocations and concerns about expansive fiscal policy also feature.

BoJ tightening expectations support yen

"The yen has strengthened sharply over the couple of trading days resulting in USD/JPY falling back towards the 155.00-level. It has proven to be an important support level so far this year after it held following intervention driven yen gains in late April/early May and in late July/early August. On this occasion the sharp strengthening of the yen appears to have been driven by fundamental drivers rather than intervention which increases the likelihood of a more sustained rebound."

"Furthermore, hawkish comments from BoJ officials including Governor Ueda at the start of this week have signalled that a rate hike is likely this month."

"A view backed up by a Bloomberg report yesterday stating that the BoJ is leaning toward raising its policy rate by 25bps this month in response to upward price risks, while leaving open the possibility of accelerating the pace of hikes thereafter, according to people familiar with the matter. BoJ officials reportedly continue to see inflation risks as skewed to the upside, with service prices and ongoing weakness in the yen strengthening the case for action. However, the report did dampen more extreme speculation over the possibility of even a larger 50bps “jumbo hike”."

"There are almost 50bps of cumulative hikes priced in by year-end and just over 75bps of hikes by the middle of next year. A slightly faster pace of hikes than our own forecasts for a further 75bps of hikes."

"At the same time, the yen has derived some support as well by renewed speculation over the potential for the GPIF to shift their asset allocation towards domestic assets which would help to ease capital outflows into overseas markets that have been weighing on the yen."

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

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD looks firm; focus is on 0.7000

AUD/USD starts the week on a positive footing, approaching the 0.7000 hurdle helped by renewed sentiment following firmer-than-expected GDP data from China. Meanwhile, the continuation of the pair’s recovery also comes in contrast with the decent advance in the Greenback, which regains some traction followong last weeks pullback.

USD/JPY struggles near 158.00 amid hawkish BoJ, subdued USD

USD/JPY remains defensive near 158.00 in the Asian session on Monday, as the US Dollar remains depressed near a two-week low amid the recent decline in US bond yields. Furthermore, looming intervention risks underpin the Japanese Yen and weigh on the pair amid BoJ Governor Kazuo Ueda's hawkish remarks. However, Fed rate-hike bets and geopolitical uncertainties could limit USD losses and the major.

Gold drops to daily lows below $4,150

Gold builds on Friday’s retracement and slips back below the $4,150 mark per troy ounce on Monday. The better tone in the US Dollar and a decent bounce in US Treasury yields across the curve keep the yellow metal under pressure for now.

XRP struggles at support as ETF outflows and bearish momentum cloud recovery outlook

Ripple (XRP) holds slightly above $1.30 on Monday, with short-term recovery prospects fading. Strong structural resistance toward $1.40 continues to cap upside, raising the risk of further downside below $1.30.

Higher than expected inflation shakes markets: What to prepare for?

US CPI report came in stronger than expected, lifting the probability of a December rate hike higher once again. Even though Fed Chair Warsh reinforced expectations of a hold for the October’s meeting, markets now face a two-step event: a likely pause on October 28, followed by an interest rate hike on December 9.

The US Dollar fell. Gold didn't rally. That tells you everything

Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.