One consequence of the stronger than expected US inflation is the re-emergence of concerns in Tokyo over the level of the Japanese Yen (JPY). Economists at MUFG Bank analyze JPY outlook.

BoJ window to hike opens a little more

There’s a reasonably high probability of a 10 bps hike in April and if the Yen extends further weaker we should see market conviction increase further too.

With USD/JPY now more or less in intervention territory, a March hike is more feasible.

This is political too and the government certainly will not want to be seen to be doing nothing given its unpopularity due to the cost of living crisis. 

US developments as we saw on Tuesday take precedence but at higher USD/JPY levels, the threat of intervention and speculation on a March hike should limit Yen selling.