Rabobank Flags Yen Intervention Risks Amid Fed Rate Cut Uncertainty

Rabobank strategists have highlighted the ongoing risk of Japanese authorities intervening in the currency market to support the yen. The bank notes that while the Federal Reserve's rate-cutting cycle is expected to resume, the timing and pace remain uncertain, which could influence the yen's trajectory.

The yen has been under pressure due to the wide interest rate differential between the US and Japan. While the Bank of Japan has begun normalizing policy, its rate hikes have been gradual, and the Fed's easing cycle has been delayed by sticky inflation data.

Rabobank believes that the Fed's path will be data-dependent, with cuts likely later in the year if inflation continues to moderate. For the yen, the key is whether the Fed acts sooner and more aggressively, which could narrow the yield gap and support the currency.

The bank advises caution in chasing USD/JPY higher, given the potential for sudden official intervention. Additionally, broader market sentiment and geopolitical factors could influence safe-haven flows, adding to the yen's volatility.