MUFG’s Lee Hardman notes that the Japanese Yen has softened after a Bloomberg report on the GPIF’s September meeting, lifting USD/JPY back above 158.00. Despite the correction, the Yen remains the best-performing G10 currency since August, helped by faster Bank of Japan policy normalization and higher JGB yields. Reuters sources suggest the BoJ may signal underlying inflation near its 2% target, reinforcing expectations for a December rate hike.

Yen pares gains on GPIF headlines

“After hitting a fresh year-to-date high yesterday at 102.54, the dollar index has lost upward momentum overnight.”

“At the same time, the yen has continued to trade on softer footing after modest sell-off yesterday triggered by Bloomberg report that Japan’s Government Pension Investment Fund (GPIF) didn’t discuss portfolio allocation at a meeting last month.”

“Even after yesterday’s correction lower, the yen has still been the best performing G10 currency since the end of August as it has strengthened alongside the US dollar.”

“Reuters has reported overnight that the BoJ may signal this month that underlying inflation has roughly hit its 2% target according to three sources familiar with its thinking, highlighting its readiness to raise rates again in the coming months.”

“Overall, the Reuters report is consistent with our view that the BoJ will stick to the faster pace of rate hikes and deliver another hike in December.”