Japanese Yen: Intervention risk supports against US Dollar – Commerzbank

Michael Pfister highlights that comments from the US Treasury Secretary about having “asymmetric information” on Bank of Japan (BoJ) moves are intended to deter speculative positioning for further Japanese Yen (JPY) weakness. While an interest rate hike next week is fully priced and further tightening expected, he warns that high expectations limit upside for the Yen until BoJ actions materialise.

Verbal signals and BoJ expectations

"Just when you think you’ve seen it all, something new comes along. The US Treasury Secretary recently claimed to have “asymmetric information” regarding the Bank of Japan’s next moves, suggesting that he is the “House” and that market participants should feel free to bet against him on a weaker yen. Such statements are rather unusual, even in the context of developments over the past few weeks (including the joint foreign exchange market interventions by the Japanese and US Treasury Departments)."

"The intention is, of course, clear. If market participants cannot be certain that continued yen weakness will be halted by strong intervention, which would lead to losses, they will exercise caution in their positioning for the time being. This will, at least for the time being, prevent any potential renewed upward trend in USD/JPY."

"An interest rate hike next week is now fully priced in, with tightening of 90 basis points expected by the middle of next year. While officials are likely to accelerate the pace at which they raise interest rates - previously once every six months - they are unlikely to commit to such a rapid pace."

"We have repeatedly emphasised that the yen will only appreciate sustainably if fundamental factors support this. The US Treasury Secretary’s statements are thus likely to ensure that the recent gains are not given up so quickly."

"However, given the high expectations surrounding the BoJ, the potential for a stronger yen is likely to be limited for the time being, at least until the first interest rate rises actually materialise. For USD/JPY to fall further, Bessent will need to back up his words with action."

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