ANZ Research discusses USD/JPY outlook and the scope for another wave of JPY intervention.

"USD/JPY surpassed 160 for the first time since April when FX intervention took place. Renewed USD strength and a further widening in US-Japan rate differentials drove the rise. While Governor Ueda’s latest remarks carried a more hawkish tone – with greater emphasis on upside inflation risks and the cost of falling behind the curve – the broader policy backdrop remains challenging for the JPY. Markets are now pricing a high probability of a 25bp hike at the upcoming BoJ meeting, and the presence of three hawkish dissents at the last meeting suggests the board is, at the margin, shifting in a less accommodative direction. With US yields still elevated, a move in the BoJ policy rate toward 1% is unlikely in isolation to materially alter the yen’s rate disadvantage. In that environment, USD/JPY is likely to remain biased higher near term, increasing the risk of more forceful verbal intervention from Japanese authorities," ANZ notes.

"Next week, the key USD/JPY level is 160.72, year-to-date high, followed by 162, particularly if US data continue to support the USD. The risk of intervention by Japanese authorities is high, but its effectiveness is uncertain. Officials may prefer to wait until after the upcoming BoJ and FOMC meetings before deciding whether to act," ANZ adds.