MUFG notes that the latest rise in USD/JPY this week paints a similar picture to what we saw back in July 2024, when Tokyo last intervened in the market to arrest the yen decline. That as we also start to approach similar levels, considering the over ¥5 trillion in intervention back then helped to draw a peak in USD/JPY close to 161.80.
Amid the latest probe towards 160.00 this week, it is the first time since that particular July that the currency pair is taking aim at the figure level. So in terms of levels, one can argue we're approaching a similar pain threshold to some extent.
And while the intervention at the time did trigger a strong rally in the yen currency after. It was ultimately also helped by the BOJ hiking interest rates while the Fed on the other hand was only starting its easing cycle.
Even so, MUFG makes special mention in pointing out that said rally ultimately failed to hold in the big picture. And USD/JPY even managed to recoup much of its declines by the end of 2024.
Taking that as an example, the firm highlights a key issue for Tokyo officials at this juncture. That being any intervention could spark some market moves in the direction they wish for. But without the appropriate drivers in terms of monetary and macro factors backing that up, it will struggle to see the yen recovery be sustained.
And considering how tough already it was back in 2024, MUFG notes that the Japan MOF will face an even steeper uphill task in getting any intervention to stick this time around. That even as the levels in USD/JPY currently are pushing almost similar boundaries to what we saw in July 2024.
Well, they're not exactly wrong I would say. Fiscal risks are perhaps the biggest concern for the yen currency and bond market at this stage. And that is one that will be hard to shake off unless the government or BOJ backs down.
