Japan’s intervention risks have intensified again after Prime Minister Takachi warned against speculative moves on Sunday, following violent yen reversals and rate-check chatter late Friday.
Summary:
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Japan’s Prime Minister Sanae Takachi warned that authorities were prepared to take action against “speculative and highly unusual” market moves as the yen weakened and bond yields rose.
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The comments follow sharp yen gains late Friday following market talk of Federal Reserve rate checks, a harbinger of real FX intervention if needed.
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USD/JPY bounced sharply from above 159.20 to below 156.00, a move that resulted in reduced liquidity on Friday.
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Officials appear to be moving from verbal warnings to operational signaling, increasing interference risks in less liquid sessions.
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Takachi’s comments ahead of Monday’s Asia trade reinforce expectations that Japanese authorities are on high alert for the yen’s erratic moves.
Japan has stepped up its cautionary rhetoric on the yen, with Prime Minister Sanae Takachi signaling readiness to act against speculative market moves as pressure increases in currency and bond markets.
Speaking during a televised debate between party leaders on Sunday, Takachi said authorities would not hesitate to respond to “speculative and highly abnormal activities,” even as he acknowledged that market pricing itself is not a matter of political direction. Although he did not explicitly reference the yen or Japanese government bonds, the timing of the comments leaves little doubt as to the intended target.
The comments come after a dramatic reversal in the yen late Friday after traders reported that the Federal Reserve Bank of New York had contacted financial institutions to ask about the yen’s exchange rate. This is a ‘rate check’ action that is a precursor to actual intervention (this is the next step along with the verbal criticism we have seen in recent months) which may continue as the Yen weakens. USD/JPY first rose to around 159.22 following the Bank of Japan’s decision, but reversed course before falling to the mid-155s.
The timing of the weekend heightened concerns, with low liquidity on Friday exacerbating the impact of official signaling. While direct intervention had not yet been observed, the Fed’s outreach was widely interpreted as laying the groundwork that may precede coordinated action when currency moves are viewed as excessive or disorganized.
Given the greater price impact deployed per dollar, market participants have long marked holiday-shortened sessions as attractive windows for Japanese action. While I focused on Monday’s US holiday (January 19) as a potential flashpoint, Friday’s rate-check chatter confirms that officials are willing to act opportunistically as liquidity remains tight.
With Takaichi now strengthening the message ahead of Asia-Pacific trading on Monday, traders are increasingly wary that Japan is shifting from prolonged verbal jabs to more concrete market operations if the yen’s weakness deepens further.
It is not normal for a Prime Minister to jump into verbal interventions, but now is an unusual time given the election campaign.
