ING’s Chris Turner says the Bank of Japan’s 25 bp hike to 1.00% is no game-changer for the Japanese Yen, as policy remains accommodative and real rates stay comfortably negative. With markets not expecting another hike until December, USD/JPY is seen skewed toward a retest of 160.70 and possibly 161/162, where further BoJ FX intervention is anticipated.

Accommodative stance keeps Yen vulnerable

“As expected, the BoJ today hiked the policy rate by 25bp to 1.00%.”

“The market thinks the next follow-up hike will not emerge until December.”

“This leaves Japan with comfortably negative real interest rates and leaves the yen as a funding currency if volatility slows even more this summer and renewed interest emerges in the carry trade.”

“Tomorrow’s FOMC meeting will also have a strong say in where USD/JPY goes from here.”

“So far, FX intervention has been ineffective and until it becomes clear that the dollar is ready to turn lower, USD/JPY looks skewed to a retest of this year’s 160.70 high, with risks to the 161/162 area, where more BoJ intervention should be expected.”

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