USDJPY

2023年10月3日

Fear of an intervention limits the upside


The bullish momentum continues to wane in USDJPY ahead of the key 150.00 level.

Intervention
One of the main factors that influenced the USDJPY exchange rate in this period was the possibility of intervention by the Japanese authorities to stem the yen’s depreciation against the dollar. The yen weakened to a nearly one-year low of 149.65 per dollar on September 21, prompting Japan’s finance minister to warn against excessive currency moves and hint at possible forex intervention. The US Treasury Secretary also said that any intervention by Japan would be understandable if it was aimed at smoothing out volatility. These remarks helped the yen recover some losses and trade around 148 per dollar at the end of September. However, the market remained wary of Japan’s intervention risk, especially as the Bank of Japan (BOJ) maintained its ultra-loose monetary policy and showed no signs of tightening in the near future.

Monetary Policy
Another key factor that affected the USDJPY exchange rate was the divergence in monetary policy between the US and Japan. The US Federal Reserve (Fed) signaled that it would start tapering its asset purchases in November and raise interest rates in 2024, as inflation remained elevated and the economic recovery progressed. The Fed also revised up its growth and inflation forecasts for 2023 and 2024, reflecting a more optimistic outlook. In contrast, the BOJ kept its policy rate at -0.1% and its 10-year bond yield target at around 0%, while expanding its green lending program and extending its pandemic relief measures. The BOJ also downgraded its growth forecast for fiscal 2023, citing the impact of the COVID-19 resurgence and supply chain disruptions. The widening interest rate gap between the US and Japan made the dollar more attractive than the yen, putting downward pressure on the latter.

Interest Rate
The interest rate differential between the US and Japan also influenced the USDJPY exchange rate through its impact on bond yields and capital flows. The US 10-year Treasury yield rose from 1.58% at the end of May to 1.87% at the end of September, as investors anticipated a faster pace of monetary tightening by the Fed amid strong inflation data and solid economic indicators. The Japan 10-year government bond yield, on the other hand, fell from 0.08% to 0.04% in the same period, as the BOJ continued to implement its yield curve control policy and buy large amounts of bonds to support the economy. The widening yield spread between the US and Japan increased the demand for US assets and reduced the demand for Japanese assets, leading to a net capital outflow from Japan and a net capital inflow to the US. This resulted in a stronger dollar and a weaker yen.

USD
The USDJPY exchange rate was also affected by various factors that influenced the strength of the dollar against other major currencies. The dollar appreciated against most of its peers in this period, as it benefited from its safe-haven status amid rising global risks, such as the COVID-19 delta variant, China’s regulatory crackdown, and geopolitical tensions. The dollar also gained support from robust US economic data, such as GDP growth, consumer spending, labor market conditions, and business confidence. Moreover, the dollar received a boost from hawkish comments by some Fed officials, who suggested that tapering could start sooner than expected and that inflation could be more persistent than transitory.

Inflation
The inflation differential between the US and Japan also played a role in determining the USDJPY exchange rate, as it reflected the different price pressures and purchasing power parity between the two countries. The US annual inflation rate rose from 5% in May to 5.4% in July, before easing slightly to 5.3% in August. The US inflation rate remained well above the Fed’s 2% target, driven by higher energy, food, housing, transportation, and health care costs. The Japan annual inflation rate increased from -0.1% in May to 3.3% in July, before edging down to 3.2% in August. The Japan inflation rate stayed below the BOJ’s 2% target, despite rising food, furniture, clothing, medical care, and recreation prices. The higher inflation rate in the US than in Japan implied that the dollar was losing value faster than the yen, which could lead to a depreciation of the former and an appreciation of the latter over time.