USD/JPY has fallen to the 154 yen level in the Tokyo market today. Taking a broader view of the recent USD/JPY trend, after being bought up to just below 162 yen, the pair reacted to a weaker-than-expected U.S. CPI with dollar selling. This was exacerbated by yen-buying intervention from the government and the Bank of Japan (BOJ), leading to a sharp decline in USD/JPY. It appears that intervention was carried out the next day to curb movements towards yen depreciation. This achieved a short-term yen appreciation trend orchestrated by Finance Minister Kanda. Since then, there has been continued autonomous yen buying as positions are adjusted.
The market is now focused on the BOJ’s decision meeting scheduled for the 31st of next week. Comments urging the BOJ to raise interest rates from figures such as Digital Minister Kono and Secretary-General Motegi (though partially denied) seem to have made it easier for overseas investors to buy yen. Today, one-week volatility has surged as the date of the BOJ decision meeting approaches, indicating strong market interest.
However, market pricing of a BOJ rate hike is hovering around 50%. Given the cautious actions of Governor Ueda so far, it seems likely that any decision will be limited to a reduction in government bond purchases of a significant scale. If a rate hike were to occur, it could result in quite a surprise reaction. Even if there is no rate hike this time, there is a possibility that future rate hikes could be clearly hinted at in press conferences or other communications. The yen market appears to be becoming increasingly speculative.
It is expected that speculation on the Japanese yen will intensify, leading to stronger yen buying ahead of the BOJ decision meeting on July 31. The plan remains to focus on trading cross-yen currency pairs.
