JPY: Cautious BoJ paves the way for intervention One camp where the dollar’s strength is untouched is USD/JPY, which is trading at 156 this morning. Overnight, the pair rallied after the Bank of Japan's widely expected rate hold was perceived as dovish. While revising the core inflation projections closer to its 2% target (1.9%) for the fiscal year 2025, markets had probably built expectations that the BoJ would add currency-specific comments and potentially start quantitative tightening. Instead, there were few indications of concern about the yen’s weakness among policymakers and it was reiterated that the Bank will “conduct the purchases in accordance with the decisions made at the March 2024 MPM”. The only tweak consisted of erasing a line where it signalled the amount of JBGs it was planning to buy each month, a move that was partly anticipated by media reports yesterday. Before the Bank of Japan decision, April Tokyo CPI figures were released and came in sharply lower than expected. The headline measure slowed from 2.6% to 1.8% and core from 2.4% to 1.6%, around 0.6% below expectations. The data was distorted by school subsidies, although even when excluding such distortion, the data is showing slower than expected price pressure. A weaker yen makes intervention even more likely. As discussed in our note on this topic yesterday, the seemingly imminent FX intervention might only happen closer to the 160 level, as Japanese officials tend to focus more on the rate of change of the yen as opposed to specific USD/JPY levels, and volatility in both USD/JPY and the trade-weighted JPY is below the levels of 2022 (when Japan last intervened).