The Japanese Yen (JPY) weakened further last week despite the BoJ’s decision to finally tighten monetary policy. Economists at MUFG Bank analyze USD/JPY outlook.

BoJ policy shift is important but global yields still key for JPY direction

From an FX perspective, it is difficult to argue that BoJ action alone both last week and going forward will be enough to change the JPY direction. But when global yields do start to move lower, the stance of the BoJ will certainly reinforce the scale of yen appreciation. 

We still see scope for USD/JPY to drop to at least 140.00 by year-end with risks of a move to the mid-130.00’s. We also expect intervention quite quickly after any break of 152.00 with the government clearly opposed to Yen depreciation that would only serve to reinforce voter dissatisfaction with the Kishida government.