USD/JPY rally pauses at 159.80 as traders weigh hawkish Fed expectations against the threat of Japanese currency intervention near the 160.00 threshold.
The pair has rallied to around 159.80 on Fed rate-hike expectations for December 9, but stalled just below the 160.00 level where Tokyo intervention is seen as a key risk. Dovish BoJ comments support further upside, while MUFG sees medium-term risks skewed to Yen strength.
The yen lost nearly 1.25% over two days on Fed-BoJ policy divergence and dovish BoJ comments casting doubt on a December 17 hike. However, a hot PPI of 7.1% YoY and MUFG's view that risks are skewed to Yen strength over the medium term offset the bearish push.
The Japanese Yen trades flat after a 1.25% two-day selloff driven by widening policy divergence between the Fed and the Bank of Japan. While markets fully price in a December 9 Fed rate hike, the USD/JPY rally has stalled near 159.80 due to fears of Japanese currency intervention at the 160.00 level. Meanwhile, October producer inflation hit 7.1% YoY, providing some support for the Yen despite dovish comments from BoJ policymaker Toichiro Asada.
The 160.00 level is viewed as a key milestone for Japanese authorities, and possible currency intervention is seen as halting further upside in the dollar-yen rate.
Comments from Fed officials due later on Thursday, the Fed's December 9 meeting where further tightening is fully priced, and the BoJ's December 17 meeting where a rate hike now looks less certain.
In the short term the policy gap with the Fed pressures the yen, but analysts at MUFG say risks look skewed to yen strength over the medium term, helped by improved confidence in the JGB market and likely intervention near 160.00.