Japanese yen at 34-year lows, prompting government intervention

The beginning of the week was not particularly good for the Japanese currency. The yen hit new 34-year lows against the dollar, thus highlighting a very different stance regarding the monetary policy of the Bank of Japan and Federal Reserve. The hawkish turn made over the last month, which significantly limited the spectrum of potential FED rate cuts this year, has a strong impact on the yields of American bonds, and this directly correlates with the strong dollar.

Are we close to another intervention?

For USD / JPY is approaching the psychological barrier of 155,00, a level considered by many market participants as a new incentive for the Japanese authorities to intervene in the FX market. What is important, Japanese Finance Minister Suzuki laid the foundations for such action, saying last week's discussions in Washington focused the audience on Japan taking appropriate action on currency markets.

The Japanese establishment is trying to put pressure on the market, but it seems to be unsuccessful at the moment. BoJ President Ueda said today that wage negotiations are not the only determinant of monetary policy, and that only an acceleration of inflation trends would justify further interest rate increases. At the moment, the bank does not have any assumptions regarding the timing of the reductions or the pace of their implementation.

Bank of Japan forecasts

However, this week's "wait and see" approach conflicts with Friday's BoJ decision. The central bank is expected to keep inflation at around 2% for the next three years in its new forecasts, signaling readiness to raise interest rates again this year from current levels close to zero. However, the risk of lower inflation seems to be a slightly stronger market factor at this point. The BOJ president himself mentioned it in today's speech, so it is possible that Bank of Japan will not adopt a hawkish tone of monetary rhetoric, despite the recent weakness of the national currency.

The USD/JPY pair remains today near the previously mentioned 34-year barrier, directing investors' attention to upcoming macro reports. The key ones will be: the PCE inflation report in the US (Friday) and the previously mentioned decision of the Bank of Japan.

On the broad Forex market in the morning, however, the dynamics of changes support the yen, which, together with the Australian dollar, are the best-performing currencies. We see increased declines in the euro and the British pound. The Polish zloty is losing slightly. We will pay PLN 4.0594 for a dollar, PLN 4.3184 for a euro, PLN 4.4452 for a franc, and PLN 5.0059 for a pound.

Source: Mateusz Czyżkowski, XTB