Japanese Yen outperforms its peers amid speculation of fresh US-Japan intervention

• The Japanese Yen trades higher against its peers amid fears that the US and Japan could intervene again.
• The US and Japan jointly intervened on Friday to prop up the Yen.
• Hawkish BoE prospects have diminished after last week's monetary policy announcement.

The Japanese Yen (JPY) trades sharply higher against its major currency peers during the European trading session on Monday. The Japanese currency is up 0.6% at around 211.00 against the British Pound (GBP) even after giving back a majority of its early gains amid fears that the United States (US) and Japan could jointly intervene again to counter excessive volatility and disorderly movements in the Japanese Yen.

Earlier in the day, Japan's Finance Minister (FM) Satsuki Katayama said that Japan “won't hesitate to carry out more forex intervention with US”. She also confirmed a joint intervention with Washington on Friday. “Conducted coordinated yen-buying intervention with US on Friday,” Katayama said.

On Sunday, US President Donald Trump also said Washington helped Japan prop up the JPY as a sign of friendship and to help the world economy, Reuters reported.

Japan’s intervention to support the Yen was highly anticipated as the currency fell to its historic low at around 219.61 against the British Pound, and to near 164.00 against the US Dollar (USD) in July.

Meanwhile, the British Pound trades lower against its peers as traders reconsider Bank of England (BoE) interest rate hike expectations.

BoE repricing seen as a headwind for Pound

Brown Brothers Harriman’s Elias Haddad argues that UK rate expectations may need to be marked lower, warning that “we see scope for a downward adjustment to UK rate expectations which is a headwind for GBP.” He notes that, despite this view, the current market still prices in further tightening, with “the swaps curve [implying] 50bps of tightening to 4.35% in the next twelve months.”

The reasoning behind traders dialing back hawkish BoE expectations appears to be remarks from Governor Andrew Bailey in the press conference, which signaled that he didn't want the public to perceive the central bank as being biased in favor of rate hikes. "Please do not leave this room thinking that the Bank of England is edging towards a hike, because frankly, there’s nothing in what I said, and I think any of us have said, along those lines," Bailey said. Reuters report.

In the policy meeting, the BoE decided to leave interest rates unchanged at 3.75%, as expected, and signaled that the central bank remains vigilant to second-round inflation effects.