BNY’s Head of Markets Macro Strategy Bob Savage highlights renewed Japanese Yen weakness after Prime Minister Sanae Takaichi expressed reservations about further Bank of Japan rate hikes. The report notes emerging tension between the government and central bank, with markets still pricing another BoJ increase by June. USD/JPY is bid as investors reassess policy risks and FX intervention remains a constraint near 160.

Government-BoJ tension pressures Yen

"The biggest FX mover overnight was JPY. It shed 1% of its value and 10y JGB yields slid 2.5bp after Prime Minister Sanae Takaichi voiced apprehension over more rate hikes in her meeting with BoJ Governor Kazuo Ueda. Her “tougher stance” was a surprise and adds to concerns about FX weakness and policy shifts being market-unfriendly."

"Intervention in tandem with the U.S. remains a brake against the 160 mark for JPY and against greater volatility."

"Multiple sources report that Japanese Prime Minister Sanae Takaichi expressed reservations about further interest rate hikes in a February 16 meeting with BoJ Governor Kazuo Ueda, highlighting emerging tension between the government and the central bank. While both sides publicly described the 15-minute talks as routine and declined to disclose details, officials said the prime minister took a firmer stance against additional tightening than at their previous meeting in November. "

"Markets expect another increase by June, with speculation of action as early as the March 18-19 meeting."

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