Brown Brothers Harriman’s (BBH) Elias Haddad highlights USD/JPY trading around 159.00, with expectations it should stay below 160.00 given intervention risks and a more hawkish Bank of Japan (BoJ). Softer May Purchasing Managers' Index (PMI) data show slower private sector momentum, but recent BoJ commentary and higher June hike odds support a stronger Japanese Yen (JPY) outlook.

Hawkish BOJ and intervention risk cap USD/JPY

"USD/JPY is holding around 159.00 and should hold under 160.00 due to threat of currency intervention. Japan’s May PMI points to slower private sector growth momentum. The composite PMI slipped -1.1ppt to a five-month low at 51.1 as services sector growth stalled and manufacturing growth lost traction."

"Regardless, the Bank of Japan (BOJ) is turning more hawkish which is JPY supportive. BOJ board member Junko Koeda said she believes “it is reasonable for the Bank to raise the policy interest rate at an appropriate pace to address high inflation while also considering the trade-offs for the economy.” Last week, BOJ board member Kazuyuki Masu also signaled support for raising rates at “earliest stage possible…if statistical data do not indicate clear signs of an economic downturn.”"

"Both Koeda and Masu voted with the 6-3 majority to keep rates on hold at the last April meeting. As such, their remarks strengthen the case for a June rate hike especially given that three other BOJ members (Nakagawa Junko, Takata Hajime, and Tamura Naoki) dissented in favor of tightening in April. The swaps market firmed up odds of a 25bps BOJ rate hike to 1.00% for the June 16 meeting."

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