JPY: Finger on the intervention trigger

Japan’s Vice Minister of Finance for International Affairs, Masato Kanda, gave the clearest intention yet that policymakers in Japan intend to intervene to support the JPY, if the currency continues to weaken. Kanda is the policymaker that makes the decision on whether to intervene and so his words tend to carry more weight with FX traders. Specifically, Kanda said the movement in the JPY is “not in line with fundamentals and is clearly driven by speculation”. He also warned that authorities are always prepared to “take appropriate action against excessive fluctuations, without ruling out any options”. Kanda’s rhetoric lifts the verbal intervention threat of actual intervention to the highest level on our barometer – level seven – warning of imminent FX intervention if the JPY continues to weaken.
USD/JPY reached a peak of 151.86 last week post the BoJ’s historic rate hike,
which is just shy of the October 2022 intervention level of 151.95. So Kanda is clearly drawing another line in the sand around the 152 level in USD/JPY. He would be hoping, however, that some USD weakness arrives due to US data in the coming weeks to avoid having to pull the trigger of intervention and spend FX reserves.
Our FX model supports Kanda’s claims. The primary model for USD/JPY has
become unstable showing that the exchange rate has become detached from its short-termfundamentals. Furthermore, the secondary model estimates USD/JPY’s short-term fair value moved only modestly higher last week from 149.13 to 149.63.