Japanese Yen holds losses below 157.00 US Dollar with intervention fears growing

• USD/JPY extends gains beyond 157.00 and is nearly 3% above the early September lows.
• Fed's Hawkish hike has offset the positive impact on the Yen from BoJ's monetary normalization plans.
• A BoJ rate check on Friday has reactivated fears of an FX intervention.

The Japanese Yen (JPY) opens the week in the same bearish trend observed in the previous one, as it keeps depreciating against the US Dollar (USD) with trading volumes lower, as the Japanese market remains closed for bank holidays. The USD/JPY pair holds above 157.00, nearly 3% above the lows witnessed earlier this month, which has reactivated market speculation about an FX intervention.

The pair bounced sharply last week, as the US Federal Reserve (Fed) raised its benchmark interest rate for the first time in three years and Chairman Kevin Warsh delivered an unexpectedly hawkish message, which prompted investors to ramp up hopes of further rate hikes in the coming months.

Futures markets are now pricing a 53% chance of a quarter-point rate hike in October, and a 90% chance of at least one rate hike before the end of the year, up from 43% and 80% respectively one week before, according to the FedWatch Tool. 

The Bank of Japan (BoJ) hiked rates by 25 basis points to 1.25% on Friday, and Governor Ueda pointed to further rate hikes, in response to economic growth and consumer prices. The two dovish dissents within the committee, however, have raised questions about how far the central bank can take its monetary tightening plans.

BoJ rate check talk tempers yen slide

Analysts at ING highlight that a reported Bank of Japan rate check on Friday "pushed USD/JPY below 157.0," and argue that, if confirmed, this would "suggest that Japanese authorities are focused more on the pace of moves over a rolling x-day period than on defending a specific level."

ING adds that "the hope is that this approach avoids creating a clear line in the sand for markets to target and helps keep positioning cautious." Even so, the bank notes that "the Fed has sounded distinctly more hawkish than the Bank of Japan this month, leaving room for further USD/JPY gains."

The calendar is thin today, with only a speech by Chicago Fed President Austan Goolsbee worth mentioning. On Wednesday, the US preliminary S&P Purchasing Managers Index (PMI) for September will provide some further insight into the health of the US economy, while in Japan, the Jibun Bank PMIs are due on Thursday.