Rabobank's Senior FX Strategist Jane Foley discusses USD/JPY backing off highs near 158 as profit taking and hawkish comments from BoJ Governor Ueda support the Japanese Yen. The bank highlights Japan’s vulnerability to higher energy prices but stresses the Yen’s safe haven role. Foley forecasts USD/JPY moving back to 145 on a one-year horizon, assuming further BoJ rate hikes.

Yen benefits from risk repricing and policy

"In early European trading, profit taking on long USD positions allowed USD/JPY to back off from yesterday’s highs in the 157.97 area."

"Looking ahead, a more hawkish tone from the BoJ would be supportive for the JPY. If other central banks are also forced to adopt less accommodative tones, this may increase volatility and undermine the environment for carry trades which is also likely to be JPY supportive."

"This morning BoJ Governor Ueda warned that the conflict in the Middle East could have a significant impact on Japan’s economy through energy prices and potentially from the impact on financial markets. While the market sees little chance of a BoJ rate hike at the March policy meeting, expectations of a move in April have been strengthening."

"If FX volatility rises, however, we would expect the JPY to perform better. Our forecast of a move back to USD/JPY145 on a 1-year view assumes the BoJ will continue to hike rates this year"

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