Lee Hardman at MUFG highlights that the Japanese Yen has benefited from risk-off trading and hawkish Bank of Japan commentary, pushing USD/JPY back below 158.00. BoJ board member Junko Koeda signalled upside risks to prices and a neutral rate well above 1%, while MUFG still expects no move at the October meeting but another hike by December, supporting the Yen outlook.

Risk-off and BoJ rhetoric lift Yen

“The yen has benefitted from more risk-off trading conditions overnight resulting in USD/JPY dropping back below the 158.00-level although its performance has been more mixed against non-USD currencies.”

“The stronger yen has also been encouraged by encouraged by hawkish comments from BoJ board member Junko Koeda.”

“In a speech to local leaders in Kumamoto overnight, she stated “given that there are considerable upside risks to prices in addition to continued accommodative financial conditions, the Bank should not become overly cautious about raising the policy interest rate”.”

“Junko Koeda stated that she believes the level of the neutral interest rate is considerably above 1%” which indicates that she still sees room for further rate hikes with the current policy rate at 1.25%.”

“We still expect the BoJ to leave rates on hold this month but hike again before the end of this year in December providing more support for the yen.”