The USD/JPY pair is once again approaching the highs of recent years, hovering just below the 152.00 level, raising eyebrows among economists and Japanese policymakers alike. Analysts at MUFG Bank delve into the pair’s current outlook.
The resurgence of Yen weakness has intensified worries within Japanese government circles. Policymakers in Japan now face mounting pressure to bolster the Yen’s position, particularly following a recalibration of market expectations for Federal Reserve rate cuts earlier this year, prompted by robust US inflation data. Despite the Fed‘s recent reassurances of maintaining a trajectory of three rate cuts this year, the US Dollar has continued its ascent, strengthening further in the past week.
Anticipating the need for immediate action, we anticipate verbal intervention from Japanese officials aimed at tempering further upside for USD/JPY in the short term. Masato Kanda, Japan’s foremost currency official, sounded a note of caution, emphasizing that “the current weakening of the yen is not in line with fundamentals and is clearly driven by speculation. We will take appropriate action against excessive fluctuations, without ruling out any options.” He further emphasized preparedness, stating, “we are always prepared” when queried about the possibility of direct intervention. Notably, Kanda highlighted the “large fluctuation of 4% in just two weeks in USD/JPY,” labeling it as “unusual” and not reflective of underlying fundamentals.
