JPY: Can yen hold on to yesterday’s gains?

The yen surged yesterday with USD/JPY dropping around 5 big figures from 163.00 to 158.00 before then rebounding. The initial move didn’t catch the eye on a day when the US dollar was weakening more generally but it quickly became clear that this was likely action from the MoF. The scale of the intra-day move following this probable action was similar to moves in previous episodes of intervention. The timing is also similar, at month-end, and will fall into the period in which confirmation will not be published until the end of August. Finance Minister Katayama predictably has refused to comment as has Vice Finance Minister for International Affairs Mimura, although he added that there were “voices of concern” over the weakness of the yen. No doubt this is meant to suggest the US – and Scott Bessent did describe the yen as “very undervalued”. Given intervention took place during New York trading there is a clear impression that this had the full support of the US administration.

Will the BoJ now try and reinforce the positive yen momentum? The decision to keep the key policy rate unchanged at 1.00% was no surprise and the 8-1 vote too was not surprising given Hajime Takata is a known hawk. The BoJ also released its updated Outlook for Economic Activity and Prices and there were some hawkish elements to the release. The summary page made reference to upside inflation risks as before but we certainly see evidence in the wording of the report that foreign exchange developments are a larger part of the contribution to the upside risks. In addition to FX, AI demand is also cited with the need to “pay attention”. The forecast for core nationwide CPI for FY2026 was lowered from 2.8% to 2.5% but the FY2027 forecast was actually higher at 2.4% (2.3% prev) underlining the building inflationary pressures. The lower forecast this year was mainly down to government support measures.

MORE MOF INTERVENTION TO BE CONFIRMED AFTER RECORD IN APRIL

Source: Bloomberg, Macrobond & MUFG Research

Governor Ueda has begun his press conference, and he has confirmed that the BoJ is “seeing a greater upside risk to inflation”. He has repeated the three key elements of focus in tracking inflation risks – AI demand, the conflict in the Middle East, and the level of the yen. These factors mean the BoJ needs to be “more aware” of upside inflation risks going forward.

While the comments and the updated outlook report do confirm increased concerns over upside inflation risks there is no clear forward guidance that catches the eye to encourage more aggressive pricing for a near-term rate hike. The MoF intervention yesterday had triggered speculation of a much more hawkish communication that would reinforce yesterday’s yen buying. While today’s BoJ communication indicates further monetary tightening, it doesn’t necessarily signal a plan to up the pace of tightening from the current every 6mths pace. Expectations for a hike in September haven’t shifted much at all and this meeting and press conference is closer to ‘more of the same’ than a signal of being more hawkish and considering a faster pace of tightening.

The MoF often acts on a second occasion when intervening and hence there will likely be some reluctance in the market to buy USD/JPY now but there is a risk that buyers will soon return given the lack of conviction from the BoJ on the potential necessity for upping the pace of monetary tightening.

SCOTT BESSENT STATED YESTERDAY THAT THE YEN IS “VERY UNDERVALUED” – JPY REER CERTAINLY SUGGESTS THAT

Source: Bloomberg & MUFG Research

GBP: Sentiment Driven Analysis on MPC statement and Press Conference

With the BoE policy decision now behind us, our focus turns to what the Bank of England's communication reveals about the likely path of policy over coming meetings. Using our textual sentiment framework, we analysed both the published MPC Member Contributions and Governor Bailey's press conference Q&A to assess whether policymakers are becoming more concerned about inflation risks and whether that is translating policy decision making.

The latest member contributions point to a hawkish hold stance. While members acknowledged softer growth dynamics and a gradually easing inflation backdrop, members remained focused on inflation persistence, second-round effects and the potential inflationary consequences of higher energy prices and geopolitical risks.

Individual member scoring highlights a still-divided Committee. Catherine Mann (80 – Hawkish Conviction), Huw Pill (71) and Megan Greene (65) remain firmly in hawkish conviction territory, while Swati Dhingra (-28) and Alan Taylor (-33) continue to represent the dovish wing. The remaining members sit close to neutral, leaving the Committee modestly hawkish overall.

The most notable development was Mann's lurch towards a strongly hawkish stance. Her contribution emphasised the inflation risks stemming from heightened geopolitical uncertainty, Middle East tensions and energy-price volatility.

Importantly, however, the press conference delivered a more balanced message than the written statement. Our framework scored the member contributions at 23.3 versus 17.0 (where -100 represents the strongest dovish conviction and 100 represent the strongest hawkish conviction) for the press conference. Although policymakers reinforced concerns around energy prices and second-round effects, Governor Bailey pushed back against any interpretation that the Bank was preparing to raise rates, explicitly stating that markets should not leave the meeting believing the MPC was "edging towards a hike".

The key message from the sentiment analysis is that policymakers remain concerned about inflation risks but are not signalling an imminent tightening. Instead, the MPC continues to favour the current restrictive stance while assessing whether recent inflation pressures prove persistent. For GBP, the communication remains supportive, but the deliberate pushback against rate hike expectations limits the scope for upside.

HAWK-DOVE SENTIMENT SCORE ON BOE STATEMENT

Source: BOE Statement & MUFG Research