JPY: Intervention risk rises as BoJ seen hiking – MUFG

MUFG’s Senior Currency Analyst Lee Hardman highlights that the Japanese Yen (JPY) has held recent gains, with USD/JPY dipping below 160.00 as officials step up verbal intervention. Finance Minister Katayama’s warnings of potential “bold action” underscore high intervention risk, while higher energy prices and a weaker Yen keep upside inflation risks alive, leaving MUFG’s forecast for further BoJ rate hikes as soon as next month unchanged.

Authorities signal readiness for bold action

"The yen has held on to yesterday’s gains with USD/JPY hitting a low of 159.49 overnight after dropping back below the 160.00-level. Japanese policymakers have pushed back strongly against the upward momentum for USD/JPY at the start of this week."

"Finance Minister Katayama told reporters that she has long been mentioning the possibility of “bold action” while noting that FX markets and crude oil futures markets have been extremely speculative. However, she refrained to comment on recent media reports on potential intervention in the oil futures market."

"The comments continue to signal that there is a high risk that Japan could intervene to support the yen if it weakens further in response to the energy price shock."

"Higher energy prices and the weaker yen are increasing upside risks for inflation in Japan and putting more pressure on the BoJ to tighten policy. The release of the softer than expected Tokyo CPI report for February is likely to provide only short-term relief."

"The data is consistent with the BoJ’s view of a temporary early year slowdown for inflation. The report does not change our forecast for the BoJ to hike rates further as soon as next month."

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