MUFG’s Senior Currency Analyst Lee Hardman notes that the Japanese Yen (JPY) has remained weak even as the Dollar has corrected lower, with USD/JPY still threatening the 160.00 level. He highlights stepped-up verbal intervention from Japanese officials and delayed expectations for further Bank of Japan (BoJ) rate hikes. Hardman argues that pushing back tightening increases pressure on Japan’s authorities to consider direct support for the Yen in the near term.

BoJ delay raises intervention pressure

"It has been a more volatile trading session overnight for the yen with USD/JPY dropping to a low of 158.27. The stronger yen was triggered by another step up in verbal intervention from Japanese policymakers. Finance Minister Katayama highlighted that she told G7 members at yesterday’s meetings that Japan is watching FX with a high sense of urgency."

"It quickly follows on from comments yesterday in which she said that they “definitely need to calm markets” and agreed to stay in close contact with Scott Bessent. The latest comments indicate a higher risk that Japan is moving closer to intervening directly to support the yen with USD/JPY still threatening to break above the 160.00-level. The yen has continued to underperform even as the US dollar has corrected sharply lower in recent weeks."

"The recent underperformance of the yen has also been encouraged by delayed expectations for further BoJ rate hikes. The Japanese rate market is now only pricing in around 5bps of hikes from the BoJ later this month after Governor Ueda failed to provide a clear signal to prepare the market for a hike earlier this week (click here). A Bloomberg report has since been released stating that the BoJ is set to closely monitor the balance between the impact on the economy and prices as well as developments in the Middle East until the last possible moment."

"The report suggests the possibility of a widening divergence of policy views amongst BoJ officials. It suggests that an April hike can’t be completely ruled out but still appears less likely now. By delaying the timing of the next rate hike, the BoJ is increasing pressure on the government to support the yen in the near-term."

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