USD/JPY: Intervention risk and BOJ options – DBS

DBS Group economist Philip Wee warns that USD/JPY is nearing the 160 level, raising intervention risks as Japan and South Korea step up verbal defence of their currencies. Tokyo is in closer contact with US authorities, and a surprise BOJ rate hike on March 19 cannot be ruled out. Authorities fear further Yen weakness will worsen imported inflation from higher energy prices.

Yen slide tests BOJ and MOF resolve

"USD/JPY faces elevated intervention risk as it approaches the psychological 160 threshold. Over the weekend, Japan and South Korea intensified their verbal defence, issuing a rare joint statement expressing serious concern over the rapid depreciation of the JPY and KRW. Reinforcing this stance, Finance Minister Satsuki Katayama confirmed that Tokyo is in closer contact than usual with US authorities."

"The government is wary that runaway JPY depreciation will exacerbate imported inflation from higher energy prices due to the Iran War. By signalling a readiness to take all possible measures, Katayama has put markets on high alert for a potential rate check by US authorities or physical JPY-buying intervention to protect the livelihoods of its citizens from further cost-of-living shocks."

"Against a backdrop of mounting urgency, a surprise rate hike at the March 19 Bank of Japan meeting cannot be fully ruled out. In the wake of the Iran conflict, the BOJ has signalled a pivotal shift in its reaction function, explicitly informing Parliament that exchange rate volatility now exerts a more profound influence on underlying inflation and expectations than in the past. "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)