Japan currency intervention not likely to sustainably curb yen weakness - poll

What the desk is arguing

The desk argues that the current trajectory of the yen is unsustainable under the existing intervention strategy, especially as the USD/JPY climbs back to 158.50. Per the full note source, the recent Reuters poll highlights that 74% of economists believe that currency intervention will not effectively address yen weakness, which underscores the challenges facing the Ministry of Finance.

Moreover, the poll indicates that 65% of economists foresee a rate hike to 1.00% by June, with a median forecast of 1.25% by Q4. This suggests a growing recognition of the need for the BOJ to act, especially in light of rising inflation risks that may outpace demand slowdown, as noted by 72% of respondents.

Where it sits in our coverage

Our consensus target for USD/JPY is 1.075, with a range from 1.04 to 1.12. Specific firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This view aligns with jpmorgan, which anticipates a more aggressive stance from the BOJ, while bofa remains cautious, suggesting a lower bound target. The desk's call is positioned at the upper end of the consensus range, reflecting a belief in continued yen weakness.

How other firms see it

Firms like jpmorgan and nomura are aligned in their expectation of a rate hike in June, viewing it as a necessary step to combat inflation and support the yen. Conversely, bofa and others express skepticism about the effectiveness of intervention and the timing of rate hikes, suggesting a more cautious approach.

The trajectory of USD/JPY will be crucial to watch, especially as it reflects broader market sentiment towards the BOJ's policy decisions and the impact of external geopolitical factors. Additionally, the potential spillover effects on other currency pairs, such as EUR/JPY, should be monitored closely as they may indicate shifts in market positioning.