FX: Launch a shock to the level of intervention! The yen continues to hit a new 9-month low

       On Monday, after rising for five consecutive days last week,USD/JPYOnce broke through the previous high of 145.071, setting a new high since November 2022, approaching the area where Japan intervened in the market last year to support the yen, and then fell back.

The persistently large interest rate differential between the US and Japan has weighed on the yen, with the current 10-year US Treasury yield approaching 4.2%, while the equivalent Japanese Treasury yield is just over 0.6%.

As traders returned to the market after the Japanese holiday on Friday, investors remained wary of any further big moves in the dollar against the yen, and they were also watching for possible comments from government officials.

Commonwealth Bank of Australia strategist Carol Kong said, "InThe recent release of weak wage and PPI dataAfterwards, weak market expectations for policy tightening by the Bank of Japan supported the dollar against the yennatural gasSupply concerns have intensified.Soaring energy prices also supported the pair”。

The significant weakening of the yen in late 2022 led the authorities to enter the market three times, the first time they have intervened to prop up the yen since 1998, the first of which was when the dollar rose against the yen to 146.

Daisuke Uno, chief strategist at Sumitomo Mitsui, said, "Market concerns about intervention are likely to intensify, officialsIt is possible to engage in verbal interventionHowever,Real intervention is unlikely in the short term”。 

Although the Bank of Japan adjusted its yield curve control (YCC) program on July 28 to allow 10-year bond yields to rise as high as 1%, this failed to stop the yen from weakening. This was partly because the Bank of Japan still said it would not tolerate rapid volatility in yields and bought JGBs to stop yields from climbing.

Christopher Wong, foreign exchange strategist at OCBC Bank in Singapore, said:If the yen moves more one-sided and too volatile, rather than simply breaking through 145, then intervention is more likely。

Rabobank analyst Renewing said the message contained in the Bank of Japan's July policy adjustment is not easy to interpret. The Bank of Japan may have been trying to give itself more flexibility on the YCC issue. However, the bank's governor Kazuo Ueda's comments on the exchange rate may have encouraged speculation that a weaker yen will lead to further increases in 10-year bond yields. Recent weaker-than-expected Japanese economic data has supported the view that the Bank of Japan will maintain its accommodative policy setting, so RabobankUpgraded expectations for the exchange rate of the dollar against the yenHe said:

"We have downgraded our forecast for the yen. We now see the dollar/yen at around 145 in three months' time, before falling back to 140 and 135 in nine and 12 months' time, respectively, in light of a more accommodative Fed policy."

yen against dollarThe exchange rate has fallen by about 9.5% this year, making it the worst performing currency among major developed market currencies.

FXTForex analysis, investors who are long USD/JPY may be "wary of verbal intervention on the chatter, but in the context of a stronger dollar, the path of least resistance right now may be to the upside."