Japanese Yen: Trade Pressure Counterbalanced by Intervention Risk – MUFG

Intervention risk and a softer US Dollar (USD) are limiting upside in USD/JPY, with MUFG’s Lee Hardman noting that the Japanese Yen (JPY) remains confined to a narrow range above 158.00. While Bank of Japan (BoJ) officials view underlying inflation as close to target, markets are pricing in a December rate hike. Higher domestic yields are supporting demand for JGBs, but a widening trade deficit driven by higher Oil prices continues to weigh on the Yen’s performance.

Can USD/JPY break its range amid trade headwinds?

"The yen has continued to trade in narrow range against the US dollar at just above the 158.00-level."

"The heightened risk of further intervention to support the yen is helping to prevent USD/JPY from moving higher in the near-term alongside the recent correction lower for the US dollar more broadly."

"There was no clear signal that the BoJ is considering raising rates again as soon as this month which is consistent with our view that the next hike will be delivered in December."

"Bloomberg reported evidence yesterday that rising yields in Japan are helping to attract more domestic demand for government bonds."

"The wider trade deficit for Japan due to the negative terms of trade shock from higher energy prices remains a headwind for yen performance."

(An editor reviewed this article, which was produced with the help of an Artificial Intelligence tool. Learn more.)