USD/JPY: Intervention doubts with BoJ caution – MUFG

MUFG’s Derek Halpenny notes that recent Bank of Japan (BoJ) intervention, estimated around JPY 10 trillion, has so far failed to deliver a sustained Yen rebound, with USD/JPY still stable. Weaker Japanese wage and inflation data risk reinforcing BoJ caution even as Japan’s Ministry of Finance intervenes. MUFG still expects a June BoJ rate hike, contingent on clearer US–Iran de-escalation.

Intervention impact hinges on BoJ shift

"We now have a reasonable idea that the BoJ spent in the region of JPY 10trn buying the yen in at least two bouts of intervention since 30th April. This is roughly similar to the amount spent in Apr-May 2024 that ultimately failed to strengthen the yen and by July that year the MoF / BoJ were intervening again. The risk with this latest intervention is that the broader global backdrop again does not support yen selling (in Apr/May 2024 front-end US yields remained elevated between 4.75% - 5.00%)."

"The reports of clashes between the US and Iran in the Strait of Hormuz certainly raises the risk of a renewed jump in crude oil prices that scuppers Japan’s efforts to halt a move in USD/JPY through the 160-level. But for now, Brent crude oil remains close to the lows for the week, down 12% from the high on Monday. Trump referred to the clashes while the UAE stated that it had intercepted Iranian missiles and drones."

"Data released in Japan today could also add to risks that this bout of intervention fails. Labour cash earnings increased by 2.7% in March from a year earlier, down from 3.4% and below the consensus of 3.2%. Full-time base pay, excluding recent sample changes increased by 2.6%, down from 3.0%."

"With the growth definitely on the weaker side it could certainly reinforce the current cautious stance of the BoJ. Tokyo CPI data for April, released last week, also came in weaker than expected which could add to BoJ caution. The OIS curve indicates 18bps of hikes priced by the next meeting in June and we currently maintain our view that the BoJ will hike at that meeting."

"A combination of Middle East de-escalation and a more hawkish BoJ is the most plausible route to the MoF’s recent intervention having any sustained follow-through."

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