Yen steadies on intervention warnings, but Takaichi trade keeps pressure intact

The yen has approached the critical psychological level of 160 amid the dominant 'Takaichi trade', with actual FX intervention seen as possibly the only tool to reverse yen weakness. Japanese officials issued warnings that capped USD/JPY at 159.45, prompting a pullback to the mid-158s. The 160 level is viewed as a threshold for intervention; thus, the synchronized warnings from Tokyo and Washington have unsettled market positioning, keeping pressure on the yen. Despite recent warnings from Finance Minister Katayama about excessive currency fluctuations, factors contributing to yen weakness remain unchanged. Markets are factoring in expectations of expansionary fiscal policy driven by Prime Minister Takaichi's popularity. Strong foreign inflows linked to Japanese equity surges continue to create persistent dollar demand, while clearing resistance levels post-mid-2025 suggests further gains are likely. The Bank of Japan's cautious stance on rate hikes could leave the yen vulnerable to depreciation without direct intervention.