Japanese yen trades at 150 ahead of BoJ meeting next week

Yen wobbles around 150 ahead of October 31 monetary policy announcement

The Japanese yen remained on the weaker side of 150 per dollar in trading on Friday — a level that some observers view a potential trigger for intervention by Japanese authorities.

The yen saw a marginal gain of over 0.2%, hovering around 150.10 per dollar but still only slightly above the one-year low of 150.78 reached on Thursday.

Finance Minister Shunichi Suzuki has emphasized Japan's commitment to responding to currency market fluctuations "with a strong sense of urgency" while speaking to reporters on Friday.

"It's important for currencies to move stably reflecting fundamentals," Suzuki said. "Excessive currency volatility is undesirable."

The official declined to comment further when asked whether there had been any recent currency intervention by the Bank of the Japan (BoJ).

With the upcoming BoJ meeting, there is growing speculation that the central bank might consider altering its approach to bond-yield control. One possibility under discussion is raising the limit on yields, which was established just three months ago.

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Japanese yen outlook: JPY sheds over 14% against USD this year

Driven by the widening gap between U.S. and Japanese interest rates, the yen has lost over 14% against the U.S. dollar this year — primarily due to the Bank of Japan's unwavering commitment to an ultra-easy monetary policy. This commitment has persisted even as other major central banks have aggressively raised interest rates to combat inflation and are now keeping them elevated — a policy stance that has become known as “higher for longer”.

In terms of economic data, Tokyo's core inflation rate, which serves as a prominent indicator of price trends nationwide, accelerated and surpassed expectations in October. The BoJ now faces increased pressure to move toward a normalization of its monetary policy in anticipation of its upcoming interest rate decision on October 31.

Despite the Bank of Japan relaxing restrictions on bond yields in July, the yen's value declined. This raises doubts about the potential for a sustainable increase driven by higher Japanese interest rates.

As per Reuters, options pricing reveals that the market is neither ready nor willing to bet on a significant yen rebound happening anytime soon.

In preparation for the central bank meeting on October 31, one-week implied volatility has surged. However, at most other timeframes, it hit its lowest levels in the past 18 months in October.

Dollar to yen rate: Some analysts say BoJ “powerless”, USD in the driver’s seat

Speaking to Reuters reporter Tom Westbrook on Friday, Patrick Law, head of Asia-Pacific FX trading at Bank of America in Hong Kong, said the yen’s trajectory this year surprised markets:

"Earlier in the year everyone thought dollar/yen was heading to 120. But now, very few people would expect it to go down that much."

Market participants previously expected Japan to play a more prominent role in determining the yen's dynamic this year.

Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, told Reuters that the Bank of Japan has little sway over the yen, compared to the Federal Reserve’s influence over the U.S. dollar:

"Even if the BOJ moves, you know, it's so powerless. It's much smaller than the fluctuation of the U.S. yields. "Dollar/yen is a function of U.S.-Japan yield gap and the U.S.-Japan yield gap is a function of the U.S. economy."

Yen forecast: Danske says USDJPY to reach 130 in 6-12 months

Some banks, however, are forecasting the dollar to yen to reverse course in the coming months. In an updated yen forecast on October 24, Danske Bank analyst Mohamad Al-Saraf wrote:

“We forecast USD/JPY to reach 130 on 6/12M horizon. This is primarily because we believe that long US yields have either reached or are close to their peak, despite the upward trajectory over the past month. In addition, historical data suggests that a global environment characterized by declining growth and inflation tends to favour the JPY. In the near-term, potential intervention fears will likely keep a cap on the upside risk.”

At the time of writing, USD/JPY was trading at 149.81, with the yen having made a 0.40% gain against the dollar on Friday, as per MarketWatch data. The DXY dollar index was steady at 106.5, having gained 0.3% over the past week.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.