Last week was a very difficult one for the Japanese Yen (JPY), Commerzbank’s FX analyst Michael Pfister notes.

Further rate hike by BoJ is not a done deal

“Instead of trading around 142 at the start of the week, USD/JPY broke through 148 on Friday on the back of strong US employment data. However, the move is by no means solely due to USD weakness, as the JPY has depreciated by more than 5% against the USD since mid-September - the most of any major currency. The cause of this correction is likely to be growing evidence that a further rate hike by the Bank of Japan (BoJ) is not a done deal, as many market participants had hoped.”

“Rather, recent statements from officials have tended to suggest that such a move is conditionsbased. The latest such statement came last week from the new Japanese Prime Minister, Shigeru Ishiba, who said that Japan 'is not in environment now to raise rates again'. Ishiba then notably backtracked, stressing that monetary policy is the responsibility of the BoJ.”

“Nevertheless, in our view, the statements make it clear that Japanese officials are well aware that the case for further rate hikes is shaky, both in terms of inflation and the weakening real economy. The tide seems to have turned somewhat recently and perhaps officials feel that the JPY's appreciation has gone a little too far. Of course, the BoJ can change its mind quickly, but in our view, the past few weeks have been a warning shot to those who are overly bullish on the JPY.”