The Japanese yen (USD/JPY) declined further on Friday, falling below 148 per dollar and returning to levels seen nearly a year ago. The drop ensued after the Bank of Japan (BoJ) decided to maintain its ultra-loose monetary policy, which aims to achieving a sustainable 2% inflation target. This decision dashed hopes that the central bank would provide indications of a potential end to its negative interest rates policy.
Furthermore, Japan's Finance Minister, Shunichi Suzuki, emphasized that he would not rule out any options on currencies and warned against significant yen weakness that could negatively impact the economy.
Japan carried out interventions in the currency market in both September and October of last year, and these actions had specific impacts on the foreign exchange market. He emphasized that he would be open to considering various options if currency volatility were to reach extreme levels.
"We are closely watching currencies with a high sense of urgency," Suzuki told reporters on Friday.
Markets.com Chief Markets Analyst Neil Wilson weighed in on the BoJ meeting in his morning note, saying there may be cause for concern for the yen going forward:
“The yen fell as the Bank of Japan was unchanged with no major changes to the statement, disappointing some who’d thought the central bank might have a few more crumbs on normalisation. Governor Ueda said the BoJ could consider ending yield curve control and modify negative interest rate policy … but only when it sees 2% inflation in sight. He kept mum on FX moves and interventions but USDJPY is above 148 this morning and must be a worry.”
In terms of economic data, Japan's headline inflation rate decelerated to 3.2% in August from the previous month's 3.3%, while the core inflation rate remained above the Bank of Japan's 2% target for the seventeenth consecutive month. Business activity in the country declined to a seven-month low in September.
At the time of writing, USDJPY was trading at 148.27, up 0.47% on the day.
Yen forecast: Analysts say yen to weaken vs. USD
In a comment cited by FXStreet, economists at TD Securities said the USD/JPY exchange rate would likely break above the 150 mark in the near future:
“It was a boring BoJ meeting with no fireworks, as all members voted unanimously to leave policy levers unchanged. The statement was also largely similar to July and there was no change in forward guidance.
Ueda's press conference also disappointed JPY bulls and those looking for hints of an exit from YCC/negative rates (including ourselves). He didn't lean against JPY weakness and just reiterated that FX should reflect fundamentals and move in a stable manner. As such the task lies with MoF officials to cap JPY weakness and there is little resistance for USD/JPY to break above 150 given the drift higher in US yields.”
Analysts at Societe Generale were also bearish on the pair in their USDJPY forecast:
“USD/JPY has staged recent leg of uptrend within two converging lines resembling a rising wedge; the pattern generally denotes receding upward momentum. This is also highlighted by daily MACD which has turned flat. However, signals of reversal in price action are not yet visible.
A break below recent pivot low at 145.90 is crucial to affirm a short-term down move. Next potential hurdles are located at projections of 149.20 and 150.30.”
Prior to the BoJ meeting, ING’s Global Head of Markets, Chris Turner, wrote that the yen to dollar rate would be “on the front line” of the dollar’s increasing strength, with the BoJ likely to intervene around the 150 mark:
“This hawkish hold may well keep the dollar bid into October and it will have to be softer US activity data – particularly a rise in jobless claims or a decline in consumer confidence and retail sales – which will be required to soften up the dollar. Dollar bears will get no joy from the Fed.
With US yields firm and US rate volatility sinking again, USD/JPY will be on the front line of this period of dollar strength. Expect to hear more verbal intervention from Tokyo and we suspect the trigger will be pulled on the approach to 150. Expect DXY to grind up to 106.”
In their latest FX Snapshot on September 18, analysts at Citibank Hong Kong said:
“Citi Analysts think USDJPY is stuck between a bullish and bearish impulse. On the bullish side, US cut pricing unwinding amid ongoing cyclical data momentum should support US yields and, by extension, USDJPY.
On the bearish side, hawkish BoJ pushback and risk of MoF intervention may keep USDJPY upside capped. Longer term, they see UST yields retracing below 4% by the end of the year, suggesting USDJPY may move closer to 130, assuming the Fed is finished hiking.”
Citi’s 3-month Japanese yen forecast saw the USD/JPY exchange rate trading a potential average of 148, which could improve to 130 in 6 to 12 months’ time, according to the bank. Citi’s long-term AUD forecast was similarly bullish, projecting the AUD/USD pair to trade at a potential average of 130.
The USD/JPY forecast from Australian bank Westpac, last updated on September 22, was surprisingly bullish on the Japanese currency, and saw the pair potentially trading at 144 in December 2023, 142 in March 2024, and 140 in June 2024. The bank sees the dollar to yen rate at 136 in December next year.
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