JPY Weekly · USD/JPY: Watch for volatility over Japan's autumn holidays

Key arguments

• The Fed's unanimous hike and signal of another near-term increase contrast with the BOJ's split 7-2 vote and no clear timing for the next move, keeping rate differentials yen-negative.
• Governor Ueda said back-to-back or larger hikes would be exceptional, suggesting the BOJ is not especially hawkish versus the Fed, ECB or RBA.
• Yen appreciation earlier this month, partly driven by US calls to end reflationary policy, may see some unwinding after the cabinet reshuffle and reflationist dissent.
• Autumn holidays thin Japanese participation and commercial yen flows, and Finance Minister Katayama reiterated coordinated FX intervention remains possible.

Corresponding source evidence

1. The USD/JPY fell back to below 155.50 on 17 September, partly due to lower crude oil prices.
2. The BOJ raised its policy rate by 25bp as expected, but the yen was sold after two policy board members voted against the decision, sending the USD/JPY above 157.
3. Governor Kazuo Ueda's press conference initially prompted some yen buying, but the move ultimately reversed and the yen weakened again, with USD/JPY rising to above 157.50 (Figure 1).