TD Securities analysts note that the Bank of Japan's (BoJ) decision to keep its policy rate unchanged at 0.75% and Governor Ueda’s lack of clear guidance for June have disappointed markets. They still expect a June hike but with reduced confidence, and warn that persistent US Dollar (USD) strength and holiday-thinned liquidity could push USD/JPY higher and raise intervention risks.

BoJ caution sustains Yen downside risks

"The BoJ kept the target call on-hold at 0.75% which was widely anticipated and the 3 dissenters initially raised hopes that Governor Ueda may commit to a June hike. Traders were left disappointed as Ueda offered no clear signal for June and at best said that the BoJ will make an "appropriate decision" at the June meeting."

"We still hold onto our June hike call, but we don't have high confidence after today's remarks and our interpretation of the Bank's outlook."

"As long as the Strait of Hormuz remains closed, we believe the BoJ may opt for a prolonged pause given the threat of demand destruction on Japan's economy."

"With JPY unable to catch a bid and a noncommittal BoJ today, the risk is a renewed bout of USD strength due to risk events (e.g., strikes on Iran resumes) which may send USD/JPY towards the high of 162 in July 2024."

"Japan begins its Golden Week holiday tomorrow (29 Apr-6 May) and risk of intervention is probably higher during this period as MoF in the past have seized on periods of lower liquidity to intervene."

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