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MUFG Sees Japanese Yen Strength, Focuses on BoJ Path Amid USD Weakness
Confirmed
In Short: MUFG highlights the ongoing strength of the Japanese Yen and the expectation for a 25 bps BoJ rate hike in September, despite mixed Japanese data.
MUFG's Michael Wan emphasizes the ongoing strength of the Japanese Yen, noting that recent USD/JPY volatility has seen the pair drop to around 152.88 before stabilizing near 153.26. This strength is attributed to a series of factors, including a stronger Tankan business survey and the Bank of Japan's (BoJ) communication signals, which are expected to support the Yen.
Mixed Japanese data, including stronger labour cash earnings and softer GDP, have not altered expectations for a 25 bps BoJ rate hike in September. MUFG Research maintains that markets are essentially fully priced for this hike, with the focus now on the BoJ's communication for the longer-term rate path. The USD/JPY pair has attracted fresh sellers in the Asian session, with the strong Tankan survey adding to the case for continued BoJ policy normalization.
US Treasury Secretary Scott Bessent has challenged traders and the market to counter his efforts to strengthen the Yen, suggesting that he has more information on Japanese policymakers' actions. Meanwhile, Taiwan's CPI inflation could provide some breathing room for the central bank to hold rates for now, but the path moving forward will be crucial in determining whether the central bank turns more hawkish.
The Greenback remains under pressure as broad Japanese Yen strength outweighs support from hawkish Federal Reserve expectations and geopolitical tensions.
What's still developing
- The commodity, for now, seems to have snapped a three-day losing streak amid a weaker US Dollar, which remains depressed near its lowest level in over two weeks amid the Bank of Japan-inspired rally in the Japanese Yen.
- The focus in our part of the world is still on the ongoing strength in the Japanese Yen, while also keeping an eye out on other global factors.