A warning shot for JPY bulls – Commerzbank

Last week was a very difficult one for the Japanese yen (JPY), notes Michael Pfister, FX analyst at Commerzbank.

A further rate hike by the BoJ is not a done deal

“Instead of trading around 142 earlier in the week, USD/JPY topped 148 on Friday amid strong US employment data. However, the move is by no means solely due to USD weakness, as the JPY has depreciated by more than 5% against the USD since mid-September – the most of any major currency. The cause of this correction will likely be growing evidence that another rate hike by the Bank of Japan (BoJ) is not a done deal as many market participants had hoped.”

“Rather, recent statements by officials have tended to suggest that such a move is conditional. The latest such statement came last week from Japan’s new prime minister, Shigeru Ishiba, who said Japan was “not in the environment now to raise rates again.” Ishiba has notably pushed back, stressing that monetary policy is the responsibility of the BoJ.”

“However, in our view, the statements make it clear that Japanese officials are well aware that the case for further interest rate hikes is shaky, both in terms of inflation and the weakening of the real economy. The tide seems to have turned somewhat recently and perhaps officials feel that the JPY appreciation has gone a little too far. Of course, the BoJ can change its mind quickly, but in our view, the past few weeks have been a warning shot for those who are overly bullish on the JPY.”