Lee Hardman at MUFG highlights that the Japanese Yen remains near year-to-date lows versus the US Dollar, with intervention risks limiting further weakness. Stronger Tokyo CPI supports expectations for additional Bank of Japan rate hikes, with markets pricing around 14bps by October and potential downside in USD/JPY if the Fed disappoints on rate hikes.

Stronger prices keep BoJ under pressure

"The JPY is continuing to trade close to year-to-date lows against the US dollar after it briefly touched the high from July 2024 yesterday at 161.95. The risk of intervention is helping to dampen yen weakness in the near-term and contributing to the yen outperforming other G10 currencies alongside the strengthening US dollar in recent weeks."

"After hitting a high of 186.32 on 17th June, EUR/JPY has dropped back below the 184.00-level moving back closer to support from the 200-day moving average at around182.50."

"The case for further BoJ rate hikes was supported by the release of the latest Tokyo CPI report for June. The report revealed that headline and core inflation measures were stronger than expected rising to 1.7% and 1.9% respectively."

"The BoJ has recently indicated that there is higher risk that inflation could overshoot their target. It has encouraged expectations that they could speed up the pace of hikes by delivering the next hike as soon as the October policy meeting rather than waiting until December."

"A BoJ rate hike could push down USD/JPY more if the Fed also disappoints market expectations for rate hikes starting in the autumn."

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