MUFG’s Lee Hardman notes that the Japanese Yen initially weakened sharply after the latest BoJ policy update, with USD/JPY briefly above 158.00 before retreating towards 157.00. Reports of a BoJ rate check signalled readiness to intervene, capping near-term Yen weakness as USD/JPY approaches 160.00. MUFG sees a “new phase” of policy consistent with rate hikes roughly every three months, with external factors like higher US yields and energy prices still pressuring the Yen.

BoJ signals limited yen weakness tolerance

“The yen initially weakened sharply after the BoJ’s latest policy update on Friday resulting in USD/JPY hitting a high of 158.05 but has since dropped back towards the 157.00.”

“The trigger for the yen rebound late on Friday were reports that the BoJ had conducted a rate check during the New York trading session sending a clear signal that they are prepared to intervene again if the yen continues to weaken.”

“The rate check should help to dampen market expectations for how much the yen will be allowed to weaken in the near-term as USD/JPY moves closer to the 160.00-level.”

“We believe that the “new phase” for monetary policy is consistent with a rate hike every three months.”

“The combination of higher energy prices and widening yield spreads is making it more difficult for Japanese policymakers to prevent a weaker yen, and increasing pressure to intervene again to buy more time.”