Japanese Yen: Stronger footing with intervention risk – MUFG

MUFG’s Lee Hardman notes that the Japanese Yen has firmed modestly, pulling USD/JPY back toward 158.00 and keeping it below the 200-day moving average near 158.50. He highlights ongoing intervention risk and closer US-Japan FX coordination, alongside rising expectations for faster Bank of Japan tightening. MUFG expects the Yen to outperform non-Dollar crosses and recently recommended a short EUR/JPY trade.

Yen supported by BoJ tightening hopes

"The yen has strengthened modestly overnight resulting in USD/JPY moving back closer towards the 158.00-level. The pair has been trading just below the 200-day moving at around 158.50 so far this month. The heightened risk of further intervention from Japan to support the yen is still helping to curtail upside for USD/JPY even as the US dollar continues to strengthen against other major currencies."

"At the same time, the yen has been deriving more support from building expectations for a faster pace of BoJ tightening. The Japanese rate market expects the BoJ to deliver another rate hike by year end in December and a cumulative total of around 75bps of additional tightening by the middle of next year. It follows the BoJ’s decision to deliver a hike last month, and signal that monetary policy has moved into a new phase indicating that a faster pace of hikes is likely to continue."

"BoJ Governor Ueda also spoke overnight in parliament where he stated that underlying inflation is very close to their goal and that it is very important to the price trend around 2.0%. In the current environment of broad-based US dollar strength, we expect the yen to continue to perform better against non-US dollar crosses. We recently recommended a short EUR/JPY trade idea (click here) to reflect building downside risks for the euro from heightened fiscal and political risks in the euro area."

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