A bomb is looming! Will the "old playbook" of Japan's intervention in the foreign exchange market be released again?

Even with the rebound at the beginning of the week,The yen remains vulnerable to sharp fluctuationsKey inflation data in the United States and the meeting between the two central banks will serve as potential catalysts.

U.S. CPI data released on Wednesday is expected to show that CPI rose for the second consecutive month in August from a year earlier.If overall price growth exceeds consensus expectations of 3.6%, speculation of another Federal Reserve rate hike could boost the dollar，And could send the yen to its lowest level since the beginning of the year.

The speed with which the yen has fallen may be the key to whether Japanese finance ministry officials step up their verbal warnings or consider action.

Japanese authorities' previous currency interventions

However, Sean Callow, senior currency strategist at Westpac Banking Corp., said history shows that...The 150 mark is important to some extentJudging by the frequency of public comments, the authorities may have some hints of imminent action, but successful intervention usually requiressurpriseTherefore, the Ministry of Finance did not want to reveal its position.

The dollar was hovering above 146 against the yen in early trading on Tuesday, and the mood was reminiscent of a year ago, when a sharp drop in the value of the yen prompted the Japanese authorities to intervene by buying yen for the first time since 1998. While a weaker yen has benefited exporters, it has also raised the cost of food and energy imports.

Last year, Japan intervened three times, costing a total of more than $60 billionThe market has only turned in Japan's favor, with the dollar falling from a multi-decade high of 151.95 against the yen last October. However, for this year, it may be harder for Japanese authorities to convince the market of the need to intervene again, as the current spread is even wider than in 2022. Callow said:

"The main argument against short-term intervention is that the spread between the Bank of Japan and the US federal funds rate justifies the weakness of the yen, and most market participants probably believe that the dollar-yen rally since April is in line with fundamentals."

The yen is constrained by the difference in US-Japan yields

Unlike a year ago, one factor that could help Japan defend the yen is,There is a growing belief that under the new governor, the Bank of Japan is moving towards tapering its ultra-loose policy.

Kazuo Ueda, governor of the Bank of Japan, said in an interview on Saturday that ending negative interest rates was an option if inflation and wages continued to rise. He added that the BoJ might have enough information on both by the end of the year. The comments strengthened support for the yen and boosted Japanese bank stocks in anticipation of higher interest rates.

But Ueda also said,The Bank of Japan is still some way from achieving its price targetThe easing policy must continue for now.If these remarks are repeated at next week's Bank of Japan policy meeting, they will place new downward pressure on the yen。

According to foreign media economist Taro Kimura,The Bank of Japan is sensitive to a weaker yen, because a weaker yen would push up import prices, which in turn would push up cost-push inflation and weaken the demand-driven inflation outlook it seeks. "We think,The Bank of Japan is concerned about damaging second-round effects”。

The Bank of Japan's next meeting, which ends on September 22, and the Federal Reserve's two-day meeting on the 20th, is notable for Japan's intervention after both the Fed and the BoJ held interest rate-setting meetings last September.

Mari Iwashita, chief market economist at Daiwa Securities, said: "I think the government has conveyed its frustration to the BoJ and wants the central bank to do its part in dealing with the weakness of the yen.With limited ammunition, the government will not intervene”。

At the same time, Treasury officials have been constantly intervening verbally.Shunichi Suzuki, Japan's finance minister, and Makoto Kanda, the top foreign exchange official, recently stepped up their warningsThey say the government will not tolerate speculation in the market if it becomes excessive

There have been no reports of currency officials contacting foreign exchange trading floors to inquire about currency trading levelsThis so-called interest rate check is actually a warning that intervention may be imminent.

someIndustrial foreign exchangeForecasters and business executives believe that,The weakening trend of the yen will not be interrupted in the short term, and the 150 mark is seen as a trigger level for possible intervention by the Japanese authoritiesAs of the end of August,Japan has $1.25 trillion in foreign exchange reserves to support its currency。

However, Ataru Okumura, senior interest rate strategist at Sumitomo Nikko Securities in Tokyo, wrote in a research note on Monday that the macroeconomic environment could weaken the authorities' willingness to take such action, as U.S. Treasury yields are likely to remain high, putting pressure on the yen. Okumura wrote:

"Intervention will prove futile and may even accelerate yen weakness."