Japan steps up FX warnings, Tokyo jawboning returns, but yen reaction limited

Japanese officials have issued renewed warnings about recent one-sided and sharp moves in the yen but market response has been muted, maintaining an elevated USD/JPY. The government emphasized that currencies should reflect stable economic fundamentals and are ready to take appropriate actions against excessive volatility. The comments came after discussions in Washington, but the market perceives these as typical jawboning with little immediate impact on FX pricing. While a weak yen benefits Japanese equity markets, it raises import costs, creating a complex scenario for policymakers. The current backdrop remains supportive for USD/JPY with interest rate differentials favoring the dollar. Thus, unless there is a strong signal from officials or a shift in global rates, sustained gains for the yen might be challenging.