Japan currency intervention not likely to sustainably curb yen weakness - poll
The desk believes that Japan's currency intervention efforts are unlikely to yield sustainable results in curbing yen weakness, particularly as the USD/JPY approaches 158.50, the highest level in two weeks. Per the full note source, a recent Reuters poll indicates that 74% of economists view currency intervention as ineffective, while 65% expect the Bank of Japan (BOJ) to raise rates to 1.00% by June. This sentiment is compounded by the ongoing geopolitical tensions in the Middle East, which may further complicate Japan's economic outlook.
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.
Key takeaways
- 0174% of economists believe currency intervention will not effectively curb yen weakness.
- 0265% anticipate a BOJ rate hike to 1.00% by June, with a median forecast of 1.25% by Q4.
- 03Ongoing geopolitical tensions may exacerbate Japan's economic challenges.
- 04The USD/JPY has reached 158.50, the highest level in two weeks.
Market implications
Traders should monitor the USD/JPY level closely, particularly as it approaches 158.50, which could trigger further intervention efforts. Additionally, the upcoming BOJ meeting in June will be critical in determining the future trajectory of the yen and potential rate adjustments.
This is the findings from the latest Reuters' poll on economists, involving the BOJ and the Japanese economy: Median forecast sees BOJ raising interest rates to 1.25% in Q4 (unchanged) 65% of economists anticipate policy rate to rise to 1.00% in June 74% of economists see currency intervention as unlikely to sustainably curb yen weakness 72% of economists see sustained inflation as being the bigger risk to the economy than demand slowdown The pressure is certainly rising for Japan and Tokyo officials as the Middle East conflict drags on. The ministry of finance's intervention efforts are not leading anywhere with USD/JPY now climbing back to 158.50. That is the highest level in two weeks, marking the time when they first intervened in the market this year.
The move higher in the currency pair has negated all the ammunition that they have thrown out during last week. There have been some minor hiccups here and there this week but they could be rate checks more than actual intervention on the part of Tokyo officials. But as they struggle to go up against the market, is it about time that the ministry of finance turn to the BOJ for assistance?
Nomura argues that the BOJ would be inclined to raise rates in June in part to help address the upside risks that may arise from a further depreciation in the yen currency. However, several other economists from the poll above argue that the BOJ may want to hold off until there is more clarity from Middle East developments. That as the negative impact on the Japanese economy may be much greater than anticipated currently.
It's a fine balance but the BOJ have only themselves to blame, after having had ample opportunities to deliver more rate hikes in the past year. And now, they are put in a very tough spot as the US-Iran war continues to play out for longer. This article was written by Justin Low at investinglive.com.
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