Japanese yen edges lower after hawkish BoJ minutes

• USD/JPY on doorstep of 150 line
• BoJ says it will buy more JGBs
• BoJ’s minutes indicate 2% sustainable inflation may be close

The Japanese yen has started the week with slight losses. In the European session, USD/JPY is trading at 149.80, up 0.29%.

BoJ says it will buy more JGBs

The Bank of Japan said on Monday that it will conduct an unscheduled purchase of Japanese government bonds(JGBs) on Wednesday. This was in response to the rise in JGB yields, which have climbed to 0.775%, their highest level since September 2013. The BoJ is looking to slow the rise in yields, which are nearing the BoJ’s cap of 1%, and defend its yield curve control policy.

The BoJ minutes were released earlier today, and a comment that the “achievement of 2% inflation in a sustainable and stable manner seems to have clearly come in sight” caught the attention of the markets. Does this mark a shift in the stance of the BoJ? The hawkish remark has raised expectations that the BoJ may be preparing to exit negative rates, which would be a sea change in the central bank’s monetary policy.

The Japanese yen remains under pressure and is trading very close to the 150 level, which has held since October 2022. The 150 line could be a red line for the Ministry of Finance, which intervened last year when the yen fell close to 152. Finance Minister Suzuki has warned that he is carefully monitoring the exchange rate and that the ministry reserves the option to respond to “excessive volatility”.

Last year’s currency interventions pushed up the yen’s value but only for a very short time. The yen’s biggest problem is US/Japan rate differentials, which have widened as US Treasuries are moving higher while JGBs have been capped at 1%. It’s doubtful that another intervention would have a longer-lasting effect on the yen, but that doesn’t mean the Ministry of Finance would resort to intervention, if only to stabilize the yen and force speculators out of the market.

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USD/JPY Technical

• USD/JPY is testing resistance at 149.97. Above, there is support at 151.23
• There is support at 149.10 and 148.50

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