Brown Brothers Harriman’s (BBH) Elias Haddad reports that USD/JPY’s test of 160.00 has heightened intervention risks, with Japanese authorities already having spent a record amount to cap the pair near that level. Governor Ueda’s more hawkish tone and market pricing for further Bank of Japan (BoJ) tightening suggest a supportive backdrop for the Japanese Yen (JPY) over the coming months.

Yen supported by BoJ tightening bias

"USD/JPY tested 160.00, raising intervention risks. Remember, Japanese authorities purchased a record ¥11.735 trillion in the period from April 28 through May 27 to stem the surge in USD/JPY. That underscores their determination to keep a lid on USD/JPY around 160.00."

"Bank of Japan (BoJ) Governor Kazuo Ueda strengthened the bank’s tightening bias. Ueda noted that the recent increase in long-term interest rates appears to be attributable to a rise in market inflation expectations. He added the BoJ should be more vigilant about the risk of a significant upward deviation in inflation materializing than to downside risks to economic activity."

"BoJ may need to tighten more than expected which is JPY positive. The swaps curve price in 86% odds of a 25bps BoJ rate hike to 1.00% at the next June 16 meeting and a total of nearly 75bps of tightening in the next twelve months."

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