Original article: https://www.bloomberg.com/news/articles/2022-10-31
Publication date: October 31, 2022, 05:55 (GMT+5)
This week, the yen will face a new condition for renewed pressure as investors turn their attention to the Fed's hawkish policy.
The Bank of Japan, as expected, has not changed its ultra-soft policy, keeping pressure on the yen and increasing the chances of further intervention by the authorities.
"Demand for the dollar remains robust as US yields look more attractive and Japan's trade deficit remains huge," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo. "As it remains unclear whether US inflation has slowed sufficiently, there is still a possibility of an excessive 75 basis point rate hike in December."
The yen has fallen 22% this year as traders focused on the widening yield gap between the US and Japan, with the former aggressively raising rates and the latter keeping them low to stimulate the economy. The Fed is expected to announce another 75 basis point interest rate hike on Wednesday, the fourth such over-the-top move.
Investors are also waiting for the Japan’s Ministry of Finance to publish monthly intervention data for October at 7 p.m. local time Monday. The numbers will be analyzed for evidence that the government has been implementing covert intervention to support the yen for a month.
In September, Japan intervened nearly $20 billion, backing the yen for the first time since 1998. According to some market analysts, the proposed intervention on October 21 amounted to a record $37 billion.
"The widening yield divergence supports the dollar-yen exchange rate, but momentum to test the growth potential is not as strong as before," said Akira Moroga, manager of currency products at Aozora Bank Ltd. in Tokyo. "The pair has solid support, but it is getting too heavy, and the 150 level will appear only if the two-year US yield, which best reflects the Fed's position, rises to about 4.6%."