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Barclays Say Fed Cutting Expectations Remain Primary Driver For USDJPY

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  • Barclays believe the threat of MOF FX intervention is still to the fore, but fundamental risks around USDJPY remain skewed to the upside. They note the timing and pace of the Fed's cutting cycle remain the primary driver.
  • The MoF has escalated its tone of verbal intervention and today's post-meeting acceleration in yen weakness is reminiscent of September 2022, when the BoJ started three FX interventions in two months, amounting to JPY9trn. This narrative should continue to add to the JPY's short-term volatility, as Japan enters the Golden Week holidays next week.
  • Overall, fundamental risks around USDJPY remain skewed to the upside amid the likely delay in the Fed's cutting cycle. Barclays continue to expect the BoJ to hike its policy rate to 25bp in July, which should provide some support for the JPY, but the timing and pace of the Fed's cutting cycle is likely a greater driver of bilateral rate differentials. Barclays also cite higher oil prices and retail investment outflows as exacerbating the recent yen weakness.
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  • Barclays believe the threat of MOF FX intervention is still to the fore, but fundamental risks around USDJPY remain skewed to the upside. They note the timing and pace of the Fed's cutting cycle remain the primary driver.
  • The MoF has escalated its tone of verbal intervention and today's post-meeting acceleration in yen weakness is reminiscent of September 2022, when the BoJ started three FX interventions in two months, amounting to JPY9trn. This narrative should continue to add to the JPY's short-term volatility, as Japan enters the Golden Week holidays next week.
  • Overall, fundamental risks around USDJPY remain skewed to the upside amid the likely delay in the Fed's cutting cycle. Barclays continue to expect the BoJ to hike its policy rate to 25bp in July, which should provide some support for the JPY, but the timing and pace of the Fed's cutting cycle is likely a greater driver of bilateral rate differentials. Barclays also cite higher oil prices and retail investment outflows as exacerbating the recent yen weakness.