Ahead Today
G3: Bank of Japan policy meeting, US U of Mich Sentiment
Asia: China PMI, Taiwan GDP, Hong Kong GDP, Thailand Current Account
Market Highlights
The Japanese Yen surged by as much as 3.3% to as low as the 158 handle during the New York trading session, before rebounding back above 160 at the time of our writing in Asia morning time. This was potentially on the back of suspected JPY intervention ahead of the Bank of Japan policy meeting later today, and comes right on the back of post-FOMC meeting weaker Dollar environment. FX intervention was not officially confirmed by authorities but various news outlets including Nikkei and Bloomberg reported Japan intervened in the FX market, with both also reporting that the US conducted a rate check on the currency pair. US Treasury Secretary Scott Bessent said in a Fox Business interview that the Japanese Yen is “very undervalued”, while Japan’s FX chief Atushi Mimura said that there have been voices of concern around recent weak Japanese Yen while declining to comment on FX intervention.
The scale of the USD/JPY move is quite similar to past Yen selling interventions including in 2024, but may have a bit more to go based on historical experience of perhaps more than a 5% move. This will also depend on how the market reacts post the Bank of Japan policy meeting, but overall we would as such be cautious on the pair heading into the weekend and early next week. With JPY net shorts still elevated close to all-time highs, authorities may be looking to flush out these positions and we suspect market participants will be more cautious on the near-term bets on JPY given the balance of risks.
Nonetheless, it ultimately boils down to fundamentals over the medium-term, and for USD/JPY to achieve a more durable retracement lower, it would require real interest rates to rise more substantially, and for market concerns around fiscal sustainability to be addressed. Today, we will get the Bank of Japan policy meeting where we do not expect a rate change, but we could get dissents for a rate hike by BOJ Board Members Takata and Tamura. Markets will also watch closely for BOJ Governor Ueda’s comments to see if there is any guidance for a faster pace of rate hikes.
To be clear, our global and Japan teams are ultimately forecasting BOJ to deliver faster rate hikes than what markets are pricing, once in September 2026 and once in January 2027, and this in part underpins our view for USD/JPY to move lower below the 160 levels over time. The fiscal aspect is nonetheless also crucial and how PM Takaichi funds her food consumption tax cut will also be key moving forward.
Taking a step back beyond Japan, while our initial fear post the FOMC meeting was that risk sentiment may take some further hit and as such weigh on emerging market Asian currencies, this has not continued so far with a rebound in technology and AI names post earnings release by Microsoft. Our modal forecasts for Asian currencies remain for modest strengthening in Asian FX against the Dollar, but the dispersion of outcomes will also rest on our assumption for oil prices to move lower over time.
