Michael Wan of MUFG observes that as markets price faster Bank of Japan tightening, the Japanese yen has gained below 154 against the US dollar (USD), its strongest level since February. At the Bank of Japan (BoJ) meeting on September 18, a 25 basis point increase is expected to be mostly priced, with attention turning to future rate forecasts. Wan predicts that as the BoJ raises in September and January, the USD/JPY will eventually drift toward the low 150s.
Yen power and the BOJ route
"During holiday-thinned US trading, the Japanese Yen strengthened to below the 154 level against the Dollar, its strongest since 23 February, likely positioning adjustments ahead of upcoming risk events, coupled with ongoing market pricing on a faster pace of monetary policy tightening by the Bank of Japan."
"While emphasis is shifting onto the BOJ's message about the broader path of rate hikes at upcoming meetings, a 25bps hike at the BOJ's 18 September meeting has already been largely priced in."
"The most recent data from the CFTC as of September 1 indicates that Yen shorts began to rebuild following the joint US-Japan intervention at the end of July, and the recent movements in USD/JPY corroborate with some potential reduction in Yen shorts given the scale of the existing positioning coupled with being consistent with historical patterns."
In the meantime, the possible scope of intervention was also brought to light by Japan's August Foreign Reserves statistics. Japan's foreign reserves dropped by 6.2% to USD$1,208 billion, with securities holdings falling by USD$87.8 billion to USD$839.6 billion.
"at general, our global and Japan teams are predicting that the USD/JPY will eventually move near the low 150s level, with the BOJ increasing at the September and January policy meetings."
Yen power and the BOJ route
"During holiday-thinned US trading, the Japanese Yen strengthened to below the 154 level against the Dollar, its strongest since 23 February, likely positioning adjustments ahead of upcoming risk events, coupled with ongoing market pricing on a faster pace of monetary policy tightening by the Bank of Japan."
"While emphasis is shifting onto the BOJ's message about the broader path of rate hikes at upcoming meetings, a 25bps hike at the BOJ's 18 September meeting has already been largely priced in."
"The most recent data from the CFTC as of September 1 indicates that Yen shorts began to rebuild following the joint US-Japan intervention at the end of July, and the recent movements in USD/JPY corroborate with some potential reduction in Yen shorts given the scale of the existing positioning coupled with being consistent with historical patterns."
In the meantime, the possible scope of intervention was also brought to light by Japan's August Foreign Reserves statistics. Japan's foreign reserves dropped by 6.2% to USD$1,208 billion, with securities holdings falling by USD$87.8 billion to USD$839.6 billion.
"at general, our global and Japan teams are predicting that the USD/JPY will eventually move near the low 150s level, with the BOJ increasing at the September and January policy meetings."
