BNY’s Geoff Yu reports that the Japanese Yen has come under renewed pressure due to weak Japanese Gross Domestic Product (GDP) data and rising Japanese Government Bond (JGB) yields, which are undermining market confidence in the Bank of Japan’s (BoJ) ability to maintain a stronger Yen [1]. The USD/JPY currency pair is trading above 159.00 after the Yen gave back gains from recent intervention efforts, indicating persistent skepticism about the effectiveness of such measures [1].
According to BNY’s iFlow data, there have been ongoing outflows from the Yen, with the daily average sales magnitude for JPY at 0.86 since July 30, the first day of intervention, compared to a 0.79 daily average for USD/JPY on a standalone basis [1]. However, the past week has seen a gradual easing in Yen selling, as positioning data now show the Yen is underheld for the first time since the end of 2024, though current holdings are described as extremely noisy [1].
The overnight weakness in the JGB market is also cited as a sign of significant concerns over the BoJ’s policy credibility [1]. Despite market expectations that a rate hike is necessary for Japanese authorities to defend the Yen, the weak GDP data has cast further doubt on the likelihood of such a move [1].
Overall, the market remains skeptical of the BoJ’s ability to successfully defend the Yen, and has used the opportunity to sell JPY both in aggregate and specifically against the USD [1].
CONCLUSION
Weak GDP data and rising JGB yields have intensified doubts about the Bank of Japan’s policy credibility, leading to renewed Yen weakness and persistent outflows. While recent data suggest Yen selling has eased, market skepticism remains high regarding the BoJ’s ability to defend the currency.