USD/JPY stays in a consolidation phase below 135.00 on Tuesday. The Bank of Japan (BoJ) maintains its dovish stance, therefore, the pair could surge above the 135 level in the coming days, economists at ING report.
BoJ under attack
“With the Fed now looking more likely to hike by 75 bps than 50 bps at tomorrow’s meeting, it is surely possible to see additional pressure on JGBs and indirectly on the BoJ to start unwinding its huge monetary stimulus.”
“A hawkish shift would help stabilise the yen, but the BoJ has so far reiterated its ultra-dovish commitment. This means that the yen remains vulnerable, especially if some stabilisation in risk sentiment lifts safe-haven support to the currency and leaves it exposed to the evidence of sharply rising yields and hawkish Fed tightening.”
“We continue to flag the elevated risk of USD/JPY breaking significantly above 135.00 in the coming days unless Japanese authorities step in with FX intervention.”