Yield differentials seem important to the USD/JPY outlook. FX intervention may be on the cards again very soon because the Japanese Yen (JPY) is weak, weighing on the consumer confidence, Rabobank FX strategists note.

JPY weakness is inflationary

“Yield differentials are clearly front and centre to the outlook for USD/JPY. Today’s downward revision to Japan’s June PMI survey has only enhanced the difficulty that BoJ hawks face.”

“That said, JPY weakness is inflationary and is weighing on consumer confidence which will increase the will of policy makers to stabilise the currency. FX intervention may be on the cards again very soon. However, in the absence of better Japanese economic data the JPY remains very vulnerable.”

“We have revised higher our forecasts for USD/JPY and see little scope for a sustained recovery for the JPY below USD/JPY160 in the coming weeks.”