Japan MOF faces a tall order in getting any yen intervention to stick - MUFG

Challenges of Yen Intervention

MUFG notes that the recent rise in USD/JPY resembles the situation back in July 2024 when Tokyo intervened to halt the yen's decline. At that time, over ¥5 trillion was injected, drawing the USD/JPY to a peak close to 161.80. Currently, as USD/JPY approaches 160.00, it signals a first attempt since July 2024, suggesting that we are nearing a pain threshold in the market. While the previous intervention did lead to a strong rally in the yen, it was also supported by the BOJ's interest rate hike, contrasting with the Fed's easing cycle at that point. However, this significant rally ultimately lacked sustainability, with USD/JPY recovering much of its losses by the end of 2024. MUFG highlights a key challenge for Japanese officials now: any intervention might trigger desired market movements, but without supportive monetary and macroeconomic factors, a sustained yen recovery remains unlikely. Given the difficulties faced in 2024, Japan's MOF may encounter even tougher obstacles in successfully executing any intervention this time around, especially with fiscal risks posing substantial concerns for the yen and bond markets unless the government or BOJ significantly alters its stance.