Commerzbank’s Volkmar Baur reports that Japan’s Ministry of Finance intervened in FX markets, with apparent US Treasury support, to address a weak Japanese Yen as Tokyo inflation stabilises around 2% with upside risks. However, the Bank of Japan left rates unchanged and only hinted at a more hawkish stance, which Baur deems insufficient to alter market expectations or prevent renewed Yen weakness in coming days and weeks.

BoJ caution keeps yen vulnerable

"The stage was set. Yesterday’s intervention in the foreign exchange market by the Ministry of Finance (MoF) clearly showed that the government is concerned about the Japanese yen being too weak. Support from the US Treasury Department also indicated that the move would likely be met with a favorable response internationally."

"This morning’s inflation data for the Greater Tokyo Area further show that inflation is now slowly stabilizing at 2%, and the momentum of recent months points more toward an upside risk."

"Despite all this, however, the Bank of Japan stuck to its course this morning and acted (too) cautiously. The key interest rate remained unchanged, but this was to be expected. There were also slight hints toward a more hawkish monetary policy."

"All of this is likely to be insufficient to prevent the JPY from trading weaker again in the coming days and weeks. The past few months (and yesterday) have shown that while the Ministry of Finance (MoF) is willing to intervene in the foreign exchange market, the exchange rate that triggers such intervention appears to be shifting higher and higher toward a weaker JPY. There is therefore little reason to believe that this will change in the coming weeks."

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