BoJ Hawkishness Lifts JPY Intervention Risks Rise

Japanese Yen (JPY) analysts at OCBC believe that intervention risks and a more hawkish Bank of Japan (BoJ) are key to the currency's performance. They expect faster BoJ policy tightening to support JPY, which in turn increases the likelihood of USD/JPY ending the year closer to 150-155 rather than its current forecast of 160.

According to OCBC strategists Sim Moh Siong and Christopher Wong, the recent rebound of USD/JPY above 157 after briefly slipping below that level following reports of a BoJ rate check last week is a sign that intervention risks have risen again. This should help limit excessive JPY weakness.

The BoJ's 7-2 vote split in favor of a rate hike may remain a near-term headwind for the JPY, but the more important takeaway is that the BoJ appears increasingly willing to tighten policy at a faster pace. This shift should ease concerns that the BoJ is falling behind the curve.

Over time, this shift should provide stronger support for the JPY. Previously, fears that the BoJ was behind the curve weakened the relationship between USDJPY and US-Japan yield differentials.