Yen Strength Persists as Japan Signals Intervention Readiness
The Japanese Yen has maintained its strength against the US Dollar, with USD/JPY pulling back to around 156.50 on Monday. This comes as policymakers in Japan have stepped up their verbal warnings about currency weakness and signaled a readiness to intervene. According to MUFG's Lee Hardman, the comments from Japanese officials at the start of this week continue to send a strong signal that Japan is prepared to support the yen through intervention.
Hardman notes that coordination with US officials and a faster Bank of Japan hiking cycle are limiting further USD/JPY gains. This has helped the Yen outperform other G10 currencies in the near term. The BoJ has already sped up its pace of hikes this month, signaling that a faster pace is likely to continue heading into year-end.
The Japanese rate market is attaching a higher-than-normal probability (~36%) to a back-to-back hike next month. MUFG expects the next hike to be delivered in December. The latest developments are helping to cap further upside for USD/JPY even as the US Dollar strengthens broadly.