From earlier:
- Japan’s Katayama: We are getting closer to taking decisive step in FX market
- Japan’s top currency diplomat issues final warning before action in FX market
This time, they’re not beating around the bush and being very explicit about it. Essentially, they’re giving currency traders one final offramp to get out of the way before they step into the market.
It still counts as a form of verbal intervention and they hardly ever offer such comments even during times when they are about to intervene. So, why do this now?
Well, to put things quite simply is that Tokyo officials are desperate. The fact remains that almost every fundamental factor out there is working against the Japanese yen currency at the moment.
The Takaichi trade is still running in the background and perhaps may even worsen if the government has to compile a supplementary budget to push out more energy subsidies. Adding to that is the BOJ facing up against cost-push inflation now in their efforts to raise interest rates. And that will come against a backdrop of a faltering economy, which is taking a massive hit from surging oil prices.
As the Middle East conflict continues to drag on, the situation just becomes even more perilous for the Japanese economy.
Tokyo officials are well aware of the current predicament. But unless the fundamental backdrop turns around, they also know very well that any intervention efforts may not be lasting. And that was the case with what we saw back in July 2024, before USD/JPY reversed back higher to cut out the intervention drop by January 2025.
And this time around, that turnaround could be even quicker considering the market backdrop and economic landscape.
As such, Katayama and Mimura know that they have to pull out all the stops in trying to stop the rout. Hence, the comments above today.
This article was written by Justin Low at investinglive.com.
