BoJ Hawkish Hold May Trigger Yen Strength Amid Multi-Decade Lows
The Japanese Yen has reached multi-decade lows against the US Dollar, but Scotiabank strategists Shaun Osborne and Eric Theoret warn that this stability may not last. Despite a slight firmness in the JPY against the USD, it still lags behind most G10 currencies.
USD/JPY trades near levels last seen in 1986 with little resistance overhead. Markets currently price little Bank of Japan tightening for July and September, so a hawkish hold next week could surprise and trigger Yen strength after recent Ministry of Finance intervention warnings.
The yen has shown signs of short-term stabilization just above Thursday's fresh multi-decade low, buoyed by the softness in the broader USD with little attributable to ongoing official commentary from the MoF. However, markets are currently pricing little for the July 31 meeting and only 10 basis points for September 18.
A hawkish hold next week could deliver an important surprise and fundamentally-driven yen strength. For now, in USD/JPY, we see little in terms of resistance as the cross hits fresh multi-decade highs at levels last seen in 1986.