Japan’s verbal interventions in the forex market have proven to be ineffective according to Francesco Pesole, ING’s FX analyst. Despite attempts to verbally intervene, the Yen continues to face speculative selling pressure and periods of quiet volatility. This has resulted in the USD/JPY pair moving higher, with the new line in the sand for intervention now close to 165.
The ineffectiveness of Japan’s verbal interventions has become apparent as the Yen continues to weaken. Pesole notes that even in the face of softer US data, speculative selling pressure on the Yen remains high. This has led to periods of quiet volatility that have pushed the USD/JPY pair higher, making it difficult for Japan to intervene effectively in the market.
As a result of the ongoing pressure on the Yen, the Bank of Japan (BoJ) is facing increasing challenges. Pesole highlights that large FX sales in the second quarter provided only a temporary solution and that the BoJ may be pressured to hike interest rates to address the Yen’s weakness. This could further impact the forex market and push the USD/JPY pair even higher.
Market expectations for the upcoming Bank of Japan meeting on July 31st are currently pricing in a 6 basis point hike. However, Pesole is more hawkish in his outlook, favoring a 15 basis point hike in July and potentially another move by the end of the year. While the BoJ has the potential to help strengthen the Yen, Pesole believes that the bearish outlook for the USD/JPY pair primarily relies on potential cuts by the Federal Reserve.
Overall, Japan’s verbal interventions in the forex market have been ineffective in addressing the weakening Yen. Despite efforts to intervene verbally, the Yen continues to face speculative selling pressure and periods of quiet volatility that push the USD/JPY pair higher. With the BoJ potentially needing to hike interest rates to address this weakness, the forex market could see continued volatility in the coming months. Market expectations for the BoJ meeting in July are currently conservative, but Pesole’s hawkish outlook suggests potential for further action by the central bank to stabilize the Yen.
