MUFG’s Derek Halpenny argues that rising crude Oil prices, higher global yields and Middle East tensions are undermining Japanese Yen stability and working against recent Ministry of Finance (MoF) intervention. With the Bank of Japan (BoJ) having held rates, Japanese Government Bonds are underperforming and real yields remain too low, leaving further FX intervention as the likely tool to prevent another sharp move higher in USD/JPY.

Higher yields and Oil pressure Yen

"Crude oil prices are moving higher again and that is going to further unsettle sovereign bond markets with inflation concerns more elevated this week following higher than expected inflation in the US."

"As we have written here before, the success or failure of MoF intervention to strengthen the yen was always going to come down to factors outside Japan’s control and those factors are clearly working against a strengthening of the yen."

"Global yields are heading higher once again, and crude oil is drifting higher with the Strait of Hormuz closed."

"USD/JPY is clear through the 158-level that marked the point when the MoF last intervened on 6th May and is quickly retracing back to the highs on 30th April when intervention first took place (both interventions to be confirmed)."

"Real yields are too low to stabilise super-long yields and real yields are declining further as inflation rises which likely makes further FX intervention by the MoF / BoJ necessary."

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