Japan’s attempts at verbal interventions to control the USD/JPY exchange rate have proven to be ineffective. Despite some weaker US economic data, the Yen continues to face high levels of speculative selling pressure, leading to periods of quiet volatility that are pushing the USD/JPY pair higher.
According to ING’s FX analyst Francesco Pesole, the new line in the sand for intervention is now close to 165. Previous large FX sales in the second quarter provided only temporary relief, putting more pressure on the Bank of Japan to consider hiking interest rates.
Market expectations for the Bank of Japan’s meeting on July 31st are currently pricing in a 6 basis point increase. However, some analysts, including ING, are more optimistic and predict a 15 basis point hike in July with the possibility of another increase by the end of the year. While the Bank of Japan’s actions can help strengthen the Yen, the overall outlook for USD/JPY largely depends on potential interest rate cuts by the Federal Reserve.