MUFG: The JPY
The hawkish repricing of Fed rate hike expectations and stronger US dollar have resulted in USD/JPY rising back to within touching distance of the 160.00-level for the first time since the start of September. USD/JPY has now almost fully reversed the adjustment lower in September that was triggered by market expectations for BoJ to speed up the pace of rate hikes and media reports suggesting that the GPIF discussed over the summer increasing funds allocated towards domestic assets. The GPIF released their latest investment results for Q2 of FY2026 last week which revealed that there has been no significant shift in allocations yet. At the end of September 2026. pension reserves totalled JPY319.78 trillion of which 24.80% were held in domestic equities and 26.49% were held in domestic bonds. It compares to at the end of June 2026 when 24.48% of reserves were held in domestic equities and 25.59% held in domestic bonds. With USD/JPY moving back towards pre-joint intervention levels from late July/early August, it has prompted Japanese officials to step up verbal intervention overnight to support the yen. Japan's top currency official Atsushi Mimura stated overnight that 'I have a stro
The hawkish repricing of Fed rate hike expectations and stronger US dollar have resulted in USD/JPY rising back to within touching distance of the 160.00-level for the first time since the start of September. USD/JPY has now almost fully reversed the adjustment lower in September that was triggered by market expectations for BoJ to speed up the pace of rate hikes and media reports suggesting that the GPIF discussed over the summer increasing funds allocated towards domestic assets. The GPIF released their latest investment results for Q2 of FY2026 last week which revealed that there has been no significant shift in allocations yet. At the end of September 2026.
pension reserves totalled JPY319.78 trillion of which 24.80% were held in domestic equities and 26.49% were held in domestic bonds. It compares to at the end of June 2026 when 24.48% of reserves were held in domestic equities and 25.59% held in domestic bonds. With USD/JPY moving back towards pre-joint intervention levels from late July/early August, it has prompted Japanese officials to step up verbal intervention overnight to support the yen. Japan's top currency official Atsushi Mimura stated overnight that 'I have a strong impression that the currency moves over the past few days have been too fast’’.
He added that "it’s too early to forget what happened this summer". It sends a strong signal that Japan is prepared to intervene again to support the yen which should help to limit further upside for USD/JPY beyond 160.00. However, it will be even more difficult to reverse the upward trend for USD/JPY right now with the USD strengthening broadly on the back of expectations for faster Fed rate hikes. If the rising risk of further intervention helps to stabilize USD/JPY while the US dollar continues to strengthen more broadly it could see non-USD yen crosses moving lower.
Dovish BoJ board member Toichiro Asada, who voted against the September hike, also spoke overnight stating that “I believe that the recent price increases have not necessarily been driven by demand factors" and considers “it necessary for the Bank to give consideration to the pace of any hikes". It does not change our view that the BoJ to continue with the faster quarterly pace of hikes in December.