Global FX: Yen intervention, re-assessing USD bearish view, central bank rundown

Hello, everybody, and welcome to J.P. Morgan's At Any Rate podcast. I'm Meera Chandan, co-head of FX Strategy at J.P.

Morgan, joined today by my colleagues from all parts of the world. We will have a bit of an Asia focus because obviously the start of the week was Yen stole the show with the moth intervention, so that's something we do need to break down. I think actually the FOMC was important as well.

It had hawkish undertones. Could have some lasting implications for the dollar depending on how the data evolves, and I think potentially we are now inching towards opening up the distribution on even hikes potentially, although the bar is high, but certainly it looks more balanced rather than asymmetrically dovish, which was the case a few months ago, and of course the question that's left me wondering basically is, is there any reason to still be bearish on the dollar? Yes, I think the dollar should be getting a de-escalation, but shades of U.S. exceptionalism are undoubtedly coming back across various dimensions, so we are taking a bit more balanced and neutral sort of stance on the dollar as we are assessing that and we are assessing how the data is going to come in, and then among other topics, of course we had a whole other bunch of central banks that went by this week, and we also have the RBA next week along with the payroll, so we're going to unpack all of that now, but let's start with the latter with the RBA in particular because it's already laid out in Sydney.

I'm joined today by Ben Jarman. Ben, on the RBA, what are your thoughts there? Obviously they've been hawkish for a while, Aussie has done really well, what do you think is the balance of risks going into it, this event, and then anything on Kiwi as well while we've got you on this podcast?

Sure, thanks Mira. So for the RBA next week, we're thinking that they deliver another 25 basis points, which would be a third hike in a row, taking the cash rate back to where it was before last year's shallow easing cycle. So I think if we get what we expect on the day, it's going to be moderately positive, Aussie, in the sense that you still have this idiosyncratic theme of an active hiker being demonstrated and the meeting is not fully priced.

So if you recall the previous move in March, it did look like a relatively close call. There was a split vote of five to four to hike. We don't think it will be as close this time just because one of the reasons for the uncertainty before was that it wasn't a forecast round, it was the early days of the Iran situation and they just didn't quite know whether there would be immediate growth concerns.

This time around, we've had a little bit more water pass under the bridge. We've had the strong 1Q CPI data and there will be upward revisions to the forecast. So I think all that considered, the message will be hawkish and while there might be a split vote, it probably won't be as split as last time.

But stepping back from the actual decision on the day, I do think this idea of the idiosyncratic rate cycle story is getting quite mature for Aussie now. We do think that after this move, the RBA won't have a lot more to do. And when we look at the relative tone of the RBA versus the G10 pack on our hawk dove scores, the gap between the RBA and the rest is at pretty extreme levels.

So if we are, particularly if we're in a kind of de-escalation regime where other central banks are starting to really entertain pushing towards a proper hiking cycle, and that can be on the basis of just inflation dominating any minor growth concerns, if it plays out that way, then Aussie just starts to stick out a little bit less. So I guess the kind of flicks of a pivot from the Fed that we got this week are a little bit symptomatic of that. On Kiwi, our view has been that they will be, in terms of the central bank, they'll be much more gradualist.

They're starting from much more accommodative policy. So they've been pretty clear, I think, in their framework that they are going to look through immediate pass-through of higher fuel prices and will only really be responding if they feel that there is tightening capacity use and that the growth recovery is still in train. So we have some low market numbers there next week.

I think that will be important. We were expecting a slight reduction in the unemployment rate, so that will keep the story on track. But I think it's, you know, relative to what the market's pricing, I'm not expecting that to be particularly kind of bullish Kiwi near term, because we do think the market's gotten ahead of itself in terms of pricing the RBNZ to move fairly imminently here, whereas we think that's more like three meetings forward.

And you can see the differentiation, I guess, between Aussie and Kiwi based on this carry differential. And I suppose the energy terms of trade is helping as well. But that has certainly been one strong dynamic, which, you know, at least my past experience as far as the relative carry differentials are concerned in DiEM can sort of last unexpectedly.

Let's move to Junia and the yen. I mean, this has been a pretty big week for Japan. It seemed to me that the BOJ net net was hawkish despite the dissents we saw.

But also, you know, the intervention was the big story. Are we done with that intervention now? And do you think what do you think is the path forward for yen?

Do you think this is a fade or not? Thank you very much for the question. So let me start with the BOJ discussion.

So given the elevated uncertainty over the Middle East situation, making it difficult for the BOJ to raise rate actually, BOJ left its policy rate unchanged as broadly expected. However, as you say, its communication was quite hawkish. In particular, 623 board, a larger part of the division had to do with inflation outlook in the outlook report and the governor with his emphasis on the upside risk to inflation and the signs that Governor Ueda is beginning to recognize the risk of being behind the curve.

Characterized hawkish tone. The BOJ appeared to have a clear intention to raise rate if the situation in the Middle East does not deteriorate further. Therefore, we expect a rate hike in June and the BOJ will continue to raise rate at the pace of once every six months.

The BOJ's hawkish hold successfully prevented yen from an acceleration of depreciation. However, when broad dollar strength driven by higher oil prices pushed the yen into the high 160s, it is the highest since July 2024, the Ministry of Finance decided to conduct a yen buying intervention for the first time since July 2024. BOJ's data suggests that yesterday's intervention amounted to about 5 to 6 trillion yen, near record highs.

Because our direct target of 164 had assumed that intervention would occur before the yen reaches 162, yesterday's intervention does not affect our medium-term yen bearish view. Generally speaking, for a currency like yen, freely traded under free-floating exchange regimes with a large market size, it is very difficult for the FX intervention itself to stop or reverse the trend driven by fundamentals. In addition, Japan's intervention must comply with G7 FX commitment.

Since G7 prohibits targeting specific exchange rate level, like 160 to 160, any attempt by Japan's authority to defend a particular level would run counter to Hasegawa's commitment. While officials have said coordination with the U.S. is in place, both Japan and the U.S. finance ministers' meeting in April last year and U.S.-Japan joint statement in September confirmed adherence to the G7 commitment. For these reasons, unless the factors supporting our yen bearish view, a global monetary policy cycle that has become less supportive for yen and policy mix under Takahashi administration, aggressive fiscal policy supported by Japanese monetary policy, changes materially, we expect the yen to ultimately break above intervention level and rise further.

However, in the 2022 and 2024 episodes, when the yen rebounded after the initial intervention induced decline and returned to the original intervention level, the Ministry of Finance did not attempt to defend that level, effectively allowing the yen to break above it and continue rising. It looks about three weeks in 2022 and about two months in 2024, the yen to rebound and move above initial intervention level. Given that while the yen upside is likely to be limited in the near term, we eventually expect the yen to break out above recent ranges and therefore maintain our year-end target of 164.

That's what we mean. Thank you. Thanks a lot, Junya.

So, you know, from a strategy standpoint, you know, we've been using yen as a funder versus Noki and, you know, it's probably not a bad one versus Aussie as well. So, dollar-yen staying in a range to drifting slightly higher, I think that should play out reasonably well. So, thanks for your comments there.

James, let's move to the European Central Banks. I mean, obviously, we have the ECB this week and I would say that they were hawkish in the sense that sort of some signaling that June very much is a go and two hikes for that matter this year are a go. But the market's already well priced to that, if not a lot more.

So, they didn't really surprise markets. And as we've been saying, for the euro, if we get a hawkish outcome from the ECB, given this growth backdrop and the terms of trade adverse backdrop, I don't really think that it changes the euro status as a funder, from my mind. What was the case with BOE?

You know, it's been a decent week for Sterling. So, good call on that. So, takeaways from the BOE.

And then also, we did the deep dive on UK politics last week. But if you want to give us a two-liner on that, I think it would be quite useful going into the May 7th elections. Yeah, sure.

Thanks, Meera. I wouldn't say too much of a surprise from BOE this week, really, yesterday. Obviously, the 8-1 vote, PIL dissenting, that's interesting in the sense that he's kind of the intellectual core of the committee.

So, you could see if the case builds over the next few months for tightening further in terms of the data displaying just further tendency for resiliency and sticky price pressures, then I could see more of the kind of fringe members joining PIL's view. And it does feel like they are setting themselves up for tightening. Certainly, our rate strategists are saying, you know, do not fade the tightening that's priced.

So, you know, there wasn't too much for Sterling to react to, ultimately, because the vote was pretty close to the consensus survey. There wasn't anything too outlandish in the forecast in terms of the scenario forecast that they set out. The press conference was pretty middle of the road.

You know, I thought in terms of the guidance around the second round effects, it was interesting that Bailey talked about food prices as something that they might be focusing on going forward, given the share of energy costs in there. But I think that guidance itself around second round impacts was interesting. And then Bailey expanding that in the press conference, saying that, you know, by the time they show up, it's too late.

So, you need to be acting quite early. That had a kind of modestly hawkish lean to it. But I think the Sterling strength that we saw yesterday, I wouldn't really pin it too much on the Bank of England.

I think some of it might have been in contrast to the ECB. Some of it might have been more of a function of dollar weakness on the day. So, I wouldn't put it too much to the BOE.

I thought BOE was pretty middle of the road. But as you say, we are in a carry environment. And, you know, I think Sterling's really the only high yielder in G10, maybe apart from the dollar, where you have positioning the other way in the sense that, you know, the market's probably not as short Sterling as it was, but it is still short.

And you look at the backdrop of very high data surprises, you know, the level of carry a central bank that looks like it wants to tighten policy. And politics that I think in terms of the UK politics, the market's been dealing with for some time now. You know, you saw Sterling's correlation to the probability of Starmer stepping down was very high back in February.

That's when, you know, we were grappling with that issue. And that sensitivity has dropped off a lot recently. I think that speaks to the idea that, firstly, that carry is dominating.

And secondly, that the political timeline is just such that we, you know, let's say we get the local elections next week. There's a formal challenge to Starmer. We'll probably see some knee-jerk weakness on the back of that formal challenge.

And then you might need to wait until September to find out who's the next PM. So, you know, that's a lot of time between now and then that investors would have to give up the carry accumulation. And I think that can kind of work in Sterling's favour in terms of maybe chipping away at some of that short positioning base.

I think for the local elections itself next week on the 7th, you know, I'm not really expecting Spot to move too much on the kind of exit poll, the vote counting, the result, unless it's a kind of shock strength, shock strong Labour performance. You know, I'd say a kind of a bad performance from Labour, I'd say, is very much priced in at this stage. You know, it has been for a while.

And it would really take, you know, Labour holding on to some of those kind of northern councils, which have traditionally been strongholds for them, you know, like Blackburn or Preston. And that kind of following through to a stronger performance that would be the surprise. And Sterling would be stronger on that because it would be a kind of political continuity type outcome.

But I think the bigger issue is whether there's a formal challenge to Starmer over the coming weeks. And I do think, you know, you can see Sterling knee jerk weakness on that. But similar to how we saw this week, when the vote in the Commons on the Mandelson issue was announced on Tuesday by the Times, Sterling knee jerked weaker and then actually went on to make new highs versus Euro on the day.

And that's the kind of dynamic we're thinking about, whether there is a rebound after the after the challenge to Starmer, given the backdrop. OK, thanks. And then maybe a quick expectation around the Norges Bank and Riksbank next week as well.

Sure. Yeah, I think, you know, our call in the end is for both central banks to be on hold. We're not getting new forecasts.

Obviously, the conflict uncertainty continues, but there is still clear divergence between the two central banks in terms of, well, we're pricing 15 basis points for next week for the Norges Bank. So there is some uncertainty there that if you look at the breakdown of the consensus forecast, there are, you know, three or four banks going for a hike. So there's there's some some uncertainty there.

We think we think they stay on hold. But, you know, even if they do and that pricing comes out for next week, you're still looking at, you know, the Nokia being a high yielder that should remain supported as long as yields and broader yields and energy prices are quite sticky. You know, a currency where it was only a couple of months ago we were talking about very, very cheap valuations for Nokia.

And obviously, they're a bit less cheap now. But in the broader context of things, if you think about real effective exchange rates, it's still still a cheap currency. Inflation.

OK, we had it. We had a slight undershoot on the last print, but it's still running at pretty sticky levels. So Norges Bank won't want to take any chances there.

They're still going to keep the communication that, you know, they may need to tighten over the over the summer and that, you know, that that should limit any kind of sell off, I think, in Nokia. And it's more of a buying opportunity if they if they don't hike. And there's a bit of knee jerk weakness in Nokia on the day, I think next week for Riksbank.

It's really the opposite story where they've had, I think, five or six inflation misses in a row. We're actually thinking more about core inflation that's going to be printing sub one percent over the next couple of months and potentially staying there for a while, which, you know, really stands in contrast to some of these other central banks. And, you know, up until a week or so ago, it was actually Sweden was the only economy in G10 where you'd seen inflation revisions from our economists come down through the conflict.

So I think that tells you, you know, the inflation picture is really quite different. And I think Riksbank have to keep that in mind. So the guidance will be still be that they could potentially hike over the coming months.

But the market knows that they can't be as forceful here in terms of the language, particularly, you know, compared to the likes of Norges Bank, the Fed Bank of England. And that just keeps stocky as a funding currency. And I think it was quite remarkable yesterday when we saw the strength in the yen on the back of the intervention.

I was scratching my head as to why stocky was actually strengthening on that. And, you know, Mira had to remind me that it's a funding currency in this environment. It's not a cyclical currency.

And that's that's very much the way we're thinking about it. Well, thanks for the shout out there, James. OK, let's last but not least, far from it, Patrick.

I think the Fed was quite important, actually, this week, you know, given that the underlying message was quite hawkish. So why don't you talk us through that? And then I guess BOC as well.

I mean, CADS actually performed pretty well. So I wonder if something's going on there and any thoughts on payrolls as well next week. Yeah, sure.

Thanks, Mira. Yeah, no, I agree on the importance of the Fed. And I think it comes down to what you said at the outset, which was, you know, there's fewer and fewer, obviously, bearish components for the dollar view right now.

Certainly kind of like the Fed's asymmetric reaction function has been a heavy weight on the dollar for the better part of the last couple of years. But now you're obviously starting to see that kind of neutralize a little bit more, even if they technically left the slight easing bias in the statement. But, you know, like just generally for me, it was, you know, the overarching theme of the whole meeting was just dissent.

Right. So Powell basically saying he's not going to resign his position and like not even political, like the mechanics of it will basically mean that, you know, Warsh will now have to replace Moran instead of Powell's open seat. So mechanically, that means, you know, one less can like dumbish member of the board.

But then obviously in the statement as well, you had the three dissents, you know, for changing the language. So certainly the committee kind of like moving in that direction. Then even in the assessment of the fundamentals, you know, Powell described inflation basically as misbehaving and that the labor market is effectively stabilizing.

So all that is consistent with a less dubish, less asymmetric reaction function overall. Of course, the market already moved there. You know, rates market took out any kind of residual cuts for this year about a month ago.

But it was important to note that on the on the meeting day market basically brought forward and priced up hikes for the first quarter next year. At one point, I think we had 13 basis points baked in for a rate increase in the first quarter of twenty seven. So market is getting a little bit more comfortable with this idea that the Fed is no longer obviously asymmetric down.

It's a little bit more biased and we'll see what the data gives us kind of from here. But the bottom line there for the dollar is that, you know, it's certainly a less dollar bearish Fed than what it has been. At the very least, it's more neutral and maybe is shifting a little bit more towards a dollar supportive Fed.

And from here, depending on the trajectory on the BOC, my read was that, yes, the market interpreted it as relatively hawkish. Canadian short end yields were higher than everybody else on the day. Of course, this was the day that Brent hit 120.

So there was a lot going on. But, you know, Canadian yields outpacing everybody else still stood out. The bank did talk about a scenario in which consecutive hikes might be appropriate.

They hadn't really talked about hikes very explicitly before. And the idea of consecutive, I think, probably stood out. But again, that was a kind of a scenario analysis.

That's certainly not their base case. And it's contingent on effectively energy price inflation spilling over more obviously into core. Now, what I argued on the day was that that's still a reasonably high bar to achieve.

Canada's inflation trajectory has also been very weak, maybe not quite as weak as Sweden. But, you know, core inflation metrics have been drifting lower, missing consensus estimates, and seem kind of heavily anchored around 2%. And the bank still maintains that excess supply is still in the economy.

So basically, the output gap can help absorb any kind of like apparent uptick in core inflation. So I think really for core inflation to move considerably higher is a pretty high bar, which to me lowers the risk of hikes. And on the other hand, I thought what was really interesting was that the Bank of Canada is also the only central bank talking actively about cuts.

I think all central banks obviously are aware of kind of like negative gross spillovers from the energy price crisis, but they're not talking about cuts. The BOC talked about cuts explicitly because of a very Canada-specific issue, which is the ongoing structural divorce from the U.S. and the implications for U.S.-Canada trade. They basically said there are scenarios in which they might still have to cut this year based on how the USMCA renegotiations go, whether there's more tariffs, et cetera.

So I thought that was actually, you know, a reasonably kind of downbeat assessment. And I thought an interesting question in the press conference was, you know, what does the BOC think is more important to the economy, the energy price shock or, you know, trade relations with the U.S.? And they said over the medium term, it's still trade relations.

It's more important. And again, so that kind of biases them more dovishly towards cuts. I think that should also kind of serve as an anchor.

So I don't see the BOC doing a whole lot in the policy rate anytime soon. That should kind of continue, I think, to anchor CAD as kind of a funder with its relatively low yield. Yeah, I hear you, Pat.

I hear you on the funder bit, but I think it's kind of interesting as well that if I look at our systematic models, for example, it seems to have improved on a bunch of metrics. Like the data is looking a bit better. The prices are more positive compared to other countries.

Obviously, the terms of trade has been moving in its favor. And I agree with you on the dollar. The dollar is looking a bit better than maybe CAD can have an unexpected sort of bid.

I don't know. You know, that's something like that's been weighing a bit on my mind. But, you know, I also put it down to something like Kiwi, which has been a low yielder for a while and has from time to time had a similar uplift.

But it's not really managed to respond to that. So, you know, fair enough. I guess if Cary is the overarching theme, then that's fine.

But, you know, if the dollar gets a little bit better for it, that can be a bit of a risk. What about payrolls? What about payrolls next week?

Yeah, we think, you know, obviously last month on payrolls was quite strong. So we're wondering if there might be a little bit of a payback on the headline. I think generally speaking, you know, various estimates of breakevens are falling closer to zero.

They had been maybe closer to 50. So it increases the odds of, you know, potentially a negative number. But that's still within a very kind of like tight overall labor supply.

So there's, I think, a sense that the unemployment rate could still remain basically unchanged, maybe even drift a little bit lower. So if you get like a very lowish number on the headline, but effectively, you know, like an unchanged unemployment rate, I don't think the dollar probably does a lot on that. If you get a situation where headline is strong and back-to-back months, unemployment's flat to lower, and the Fed is, you know, signaling a little bit more discomfort, I think that probably gives the dollar a little bit more legs to the upside.

So I think that's kind of how it would look for next week. Okay, makes sense. And for what it's worth, if I look at the dollar weakness in 25, actually, yes, it was about the German fiscal and the European fiscal, but it was also about payroll softening.

And that does seem to have broadened out. So that's yet another reason why I'm wondering if the picture is actually turning here for the dollar. But let's wrap it up.

We've had a long one this week. Thank you very much for joining. This communication is provided for information purposes only.

Please refer to JPMorgan Research Reports related to its content for more information, including important disclosures of 2026 JPMorgan Chase & Company, all rights reserved. This episode was recorded on May 1st, 2026.