JPY: rescued by soft US data

USD/JPY was testing the MoF’s patience yesterday with breaches of 145, but still
short of the high of 145.90, which triggered intervention. The move higher in
USD/JPY generated some verbal intervention, however, with Japan’s Finance
Minister Shun’ichi Suzuki saying policymakers will take bold action against onesided
moves, if needed. One step short of signalling actual intervention was
imminent. USD/JPY has retreated since then, largely due to lower UST yields and
a weaker USD following the soft US ISM manufacturing reading. We continue to
think a turnaround in USD/JPY will be driven by the US side rather than the Japan
side. Tokyo CPI headline inflation recorded some slight moderation to 2.8% YoY
from 2.9% YoY potentially supporting BoJ Governor Haruhiko Kuroda’s view that
inflation is supply-side driven and likely temporary. But the measures excluding
fresh food as well as fresh food and energy both continue to accelerate and rose
to 2.8% YoY and 1.7% YoY. Kuroda continues to face a communication problem
given that inflation is becoming more broad based, but will likely continue to lean
on the fact that core inflation excluding fresh food and energy remains below the
BoJ’s 2% target.

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