USD/JPY: Could hawkish Fed force MOF intervention

Speculation surrounding Japan’s intervention in the foreign exchange market has reached fever pitch as the USD/JPY pair surged past the crucial 150 level, triggering anticipation among market participants. However, contrary to expectations, Japanese authorities remained conspicuously absent, refraining from intervening in the currency market despite the breach.

Official confirmation from Japan’s government on Tuesday, based on data provided by the Ministry of Finance, confirmed that there had been no intervention in the currency market throughout the past month. The data, spanning from September 28 to October 27, revealed a distinct lack of government spending on intervention, dispelling rumours that had been circulating in the market.

The likelihood of Japan making its first foray into the forex market in over a year now hinges on the Federal Reserve’s imminent policy stance, especially the tone set by its chair, Jerome Powell. If the Federal Reserve conveys a more hawkish message than anticipated, it could trigger heightened demand for the dollar, posing the risk of USD/JPY surging beyond the 152 mark for the first time since 1990. Notably, Japan intervened in the FX markets, engaging in yen-buying, when the USD/JPY pair approached the 152 threshold in October 2022.

Japan’s top currency diplomat, Masato Kanda, warned on preparedness for potential intervention, stating, “we’re on standby” when asked about the likelihood of yen-buying intervention. Kanda’s warning came in the wake of the USD/JPY pair registering its most significant one-day gain since June 2022 earlier this week.

Take care out there.