MUFG’s Lee Hardman notes the Japanese Yen (JPY) is trading in a narrow USD/JPY range above 158.00, with intervention risk and a softer US Dollar (USD) capping upside. Bank of Japan (BoJ) officials see underlying inflation near target, with markets pricing a December hike. Rising domestic yields are boosting JGB demand, though a wider trade deficit from higher Oil prices remains a headwind for Yen performance.

Range-bound USD/JPY with trade headwinds

“The yen has continued to trade in narrow range against the US dollar at just above the 158.00-level.”

“The heightened risk of further intervention to support the yen is helping to prevent USD/JPY from moving higher in the near-term alongside the recent correction lower for the US dollar more broadly.”

“There was no clear signal that the BoJ is considering raising rates again as soon as this month which is consistent with our view that the next hike will be delivered in December.”

“Bloomberg reported evidence yesterday that rising yields in Japan are helping to attract more domestic demand for government bonds.”

“The wider trade deficit for Japan due to the negative terms of trade shock from higher energy prices remains a headwind for yen performance.”