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USD/JPY stays near 1986 highs as BoJ hike talk grows

MUFG says USD/JPY volatility has fallen, weakening the case for Japanese Ministry of Finance intervention and pointing to a BoJ rate hike as the catalyst after July.

Reported · Written up by our desk · Major Pairs

Japanese yen weakness persisted as USD/JPY traded at levels last seen in December 1986, according to analysis highlighted by FXStreet. MUFG’s Derek Halpenny said the move has been gradual and that broader USD/JPY volatility has remained subdued, reducing the Ministry of Finance’s justification for intervening.

Halpenny also noted limited contagion in Japanese bonds, but cited building inflation pressures and political pressure as key factors. He argued that a Bank of Japan rate hike is likely needed, with expectations potentially shifting if the BoJ turns more hawkish in communication after July.

FXStreet reported that Finance Minister Katayama attributed yen weakness solely to the worsening situation in the Middle East, while also saying Japan would take appropriate and bold action if needed. Halpenny interpreted the “should the need arise” wording as a sign of less urgency than in prior intervention episodes.

MUFG further pointed to options pricing, saying 1-month implied volatility in USD/JPY fell below 6.0% last week for the first time since February 2022. The analysis added that only about 6 basis points were priced for September, and that a more hawkish July message could prompt a repricing of expectations.

Latest closeUSD/JPY 162.90 ▲0.3%

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