JPY: Self-inflicted – Commerzbank

After the wild ride of the past few weeks, USD/JPY seems to be settling down. Over the past three days, the pair has stabilized around the 147 level. Prior to that, the Japanese Yen (JPY) had gained almost 10% against the US Dollar (USD) in just five trading days, only to give back about 4% in two days, Commerzbank’s FX strategist Volkmar Baur notes.

More volatility for USD/JPY

“I could see USD/JPY moving back towards 150, but the calm of the past few days seems more like an unstable equilibrium. For the moment, the exchange rate seems to have calmed down, but the US is still expected to cut its key interest rates about four times by the end of the year. However, our economists still do not expect a recession in the U.S., so they still expect only two rate cuts.”

“In this case, USD/JPY should gradually rise, but only if this repricing also happens gradually. However, market expectations are rarely changed gradually – it usually happens by a trigger and then again somewhat abruptly. And since the market is still struggling to find an appropriate level for USD/JPY, this could well lead to more volatility.”

“I would like to say a few words about the comments made by BoJ Deputy Governor Uchida, which have of course already been discussed at length here. Because there is one thing that I find remarkable. He said that interest rates should remain unchanged as long as market volatility is high. The BoJ has once again maneuvered itself into a very difficult situation. And it is entirely its own fault. One almost feels sorry for the JPY.”