The USD/JPY market has fluctuated sharply since July. With the September BOJ meeting and the US FOMC approaching, Sasaki Toru (佐々木融) says continued BOJ rate hikes and an improvement in real interest rates will be key to reversing the yen’s decline.
USD/JPY has continued to fluctuate sharply, moving temporarily from around ¥164 to the ¥155 range before returning to around ¥160. While the market is increasingly pricing in an additional BOJ rate hike, it believes the sustainability of policy, rather than the scale of intervention, will determine the yen’s direction.
Although coordinated intervention by Japan and the United States prompted a short-term appreciation of the yen, the market is not expected to undergo a major shift in trend as long as fundamentals continue to create downward pressure on the yen. It has been noted that actual-demand and retail demand for dollar purchases could limit yen appreciation after the intervention.
As pressure from the United States on the BOJ to raise rates intensifies, cautious consideration continues over the BOJ’s independence. There is a view that rising US long-term interest rates and the shift from deflation and disinflation to an inflationary era are affecting global interest-rate trends.
A rate hike is priced in for the September FOMC, and some have pointed out that a strong restraining stance by central banks is needed to curb the rise in long-term interest rates. Meanwhile, the focus is on whether the BOJ can continue raising rates gradually. The view has been expressed that the continuity of its policy going forward matters more than whether a rate hike of more than 25bp is implemented.
Toward year-end, higher crude oil and commodity prices could increase Japan’s import bill and widen its trade deficit. If this strengthens supply and demand for dollar purchases and yen sales, a scenario in which downward pressure on the yen resurfaces is also possible.