MUFG’s Derek Halpenny and Abdul-Ahad Lockhart note that the Japanese Yen surged as USD/JPY dropped from 163.00 to 158.00, in a move they attribute to probable Ministry of Finance intervention during New York trading. They highlight BoJ’s unchanged 1.00% policy rate, modestly more hawkish inflation outlook, and limited guidance for faster tightening, suggesting USD/JPY buyers may soon return despite intervention risks.

Yen gains, BoJ steady, MoF active

"The yen surged yesterday with USD/JPY dropping around 5 big figures from 163.00 to 158.00 before then rebounding. The initial move didn’t catch the eye on a day when the US dollar was weakening more generally but it quickly became clear that this was likely action from the MoF."

"The decision to keep the key policy rate unchanged at 1.00% was no surprise and the 8-1 vote too was not surprising given Hajime Takata is a known hawk. The BoJ also released its updated Outlook for Economic Activity and Prices and there were some hawkish elements to the release."

"The summary page made reference to upside inflation risks as before but we certainly see evidence in the wording of the report that foreign exchange developments are a larger part of the contribution to the upside risks. In addition to FX, AI demand is also cited with the need to “pay attention”. The forecast for core nationwide CPI for FY2026 was lowered from 2.8% to 2.5% but the FY2027 forecast was actually higher at 2.4% (2.3% prev) underlining the building inflationary pressures."

"The MoF intervention yesterday had triggered speculation of a much more hawkish communication that would reinforce yesterday’s yen buying. While today’s BoJ communication indicates further monetary tightening, it doesn’t necessarily signal a plan to up the pace of tightening from the current every 6mths pace."

"The MoF often acts on a second occasion when intervening and hence there will likely be some reluctance in the market to buy USD/JPY now but there is a risk that buyers will soon return given the lack of conviction from the BoJ on the potential necessity for upping the pace of monetary tightening."

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