USD/JPY: Verbal support and BoJ hike risk cap upside – MUFG

MUFG’s Senior Currency Analyst Lee Hardman notes that the Japanese Yen has been more resilient than other G10 currencies versus the US Dollar, with USD/JPY holding just below 160.00. Verbal intervention from Japanese officials and growing speculation about a possible BoJ rate hike, supported by robust wage gains, are helping to limit further Yen weakness and keep markets alert to intervention risk.

Yen resilience on policy and wage signals

"The yen has held up better than most other G10 currencies against the US dollar overnight with USD/JPY continuing to trade just below the 160.00-level."

"Vice Finance Minister for International Affairs Atsushi Mimura warned that the government will take all possible steps to respond to speculative moves in the market as needed. He noted that “some market participants say speculative moves in crude oil futures are affecting the foreign exchange market”, and “considering the impact of currency moves on the economy and people’s daily lives, the government will take all possible measures at any time”."

"The comments will keep market participants wary of the risk of direct intervention to support the yen if USD/JPY breaks above the 160.00-level and moved back closer to the high of 161.95 from July 2024."

"The weak yen and rising energy prices encouraged to the BoJ to leave the door open to a rate hike as soon as at next month’s policy meeting. There are currently around 16bps of BoJ hikes priced in by the April policy meeting."

"The case for another BoJ hike has been supported as well by further evidence of stronger wage growth in Japan. Japan’s largest labour union, Rengo, revealed that its workers secured an average pay increase of 5.26% which was only slightly lower than last year’s initial reading of 5.46%. "

"The base pay component was slightly higher than last year at 3.85%. It was the third consecutive year that workers had secured wage increases of over 5%."

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