USD/JPY approaches the 160 threshold, triggering intervention risks, while MUFG notes that improving BoJ policy confidence and potential tax incentives for JGBs could support the yen over the medium term.
USD/JPY has returned close to the 160-level after the US inflation data, where FX intervention by Japanese authorities becomes a much greater prospect. MUFG sees risks skewed to yen strength over the medium term as confidence in the BoJ improves and domestic flows turn toward JGBs. The yen-supportive case is medium-term, so the immediate downward pressure on the pair may persist near 160.
JGBs have sold off recently, but confidence in the market is improving with the more active BoJ and the view that only one or two further hikes would reach the neutral rate. Proposed tax incentives for individual JGB buying could add household demand, which would support bond prices and weigh on yields, though the BoJ's gradual hiking path offsets this.
The USD/JPY pair has climbed back toward the 160 level following recent US inflation data, heightening the risk of currency intervention by Japanese authorities. MUFG analysts suggest that while short-term pressure persists, medium-term risks are shifting toward yen strength as confidence in the Bank of Japan grows and domestic demand for JGBs potentially increases.
Because near 160, Japanese authorities are much more likely to intervene to support the yen, and MUFG argues improving confidence in the Bank of Japan and rising domestic JGB demand tilt medium-term risks toward yen strength.
It weakened the yen sharply in the short term and pushed USD/JPY closer to 160, but the bank argues intervention risk and improving domestic flows limit further upside for the pair.
Proposed tax changes that would make individual JGB holdings tax-free under NISA accounts or exempt them from inheritance tax, plus growing confidence that the Bank of Japan is close to its neutral policy rate.
The tax incentives are only growing speculation so far, and JGBs have recently sold off, so the improvement in sentiment is not yet a confirmed turnaround.