BNY’s Bob Savage highlights that USD/JPY remains close to 160.00 as markets price a high probability of a June BoJ rate hike, yet see Governor Ueda as insufficiently hawkish. Japanese authorities stress G7 agreement on limiting excessive FX volatility and pledge cooperation with the U.S. The report notes USD strength alongside higher U.S. yields, with intervention risk central for USD/JPY.

Authorities warn on Yen volatility

"JPY has held near 160 to the USD, despite comments by the government and the BoJ. Markets are pricing in a 86% chance of a June 16 rate hike in Japan, but Governor Kazuo Ueda’s speech was not seen as hawkish enough. Markets may be underestimating the determination of the BoJ and MoF, as the tilt toward fighting inflation rather than supporting growth stands out."

"BoJ Governor Kazuo Ueda has acknowledged that the situation in the Middle East “has not subsided as quickly as initially expected” and that the central bank may need to keep raising policy rates in response to inflationary pressures. He called the current supply shock during an inflationary period “something the country has not experienced in decades.” However, despite the need to respond to upside price risks, he also stated that the BoJ would need to discuss the pros and cons of a rate hike for the price target, which is a policy debate most central banks are undertaking given the impact on growth of tighter monetary policy."

"Japanese Prime Minister Sanae Takaichi said today that G7 leaders agreed that excessive foreign exchange volatility is harmful to the economy, underscoring the need for close international coordination on currency markets. Takaichi said Japan would work with partners, including the U.S., to deepen cooperation on foreign exchange issues, while stressing the importance of the government’s forex policy in supporting the domestic economy. She also reiterated her commitment to taking “appropriate steps” in response to currency market movements whenever necessary."

"USD/JPY fell in response to the comments, as markets were already nervous about intervention risk as the pair approached the key 160.00 level."

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