Synopsis:

Credit Agricole discusses the possibility of ongoing interventions by Japan's Ministry of Finance (MoF) to support the weakening Japanese Yen (JPY). The report highlights the challenges and potential strategies the MoF might employ to stabilize the currency amid rising U.S. Treasury yields and domestic monetary policy constraints.

Key Points:

• Persistent Weakness: The JPY continues to face downward pressure, largely driven by U.S. Treasury yields and a lack of aggressive monetary policy adjustments from the Bank of Japan (BoJ).
• Official Statements: Masato Kanda, Japan's Vice Minister of Finance for International Affairs, has reiterated warnings about potential intervention, although he remains non-committal about past interventions.
• Intervention Capacity: Estimates suggest the BoJ has utilized approximately USD 55 billion of the MoF's readily available USD 155 billion in liquid reserves for intervention. There are additional strategies, such as using futures or selling short-term securities, which could enhance the MoF's intervention capacity.
• Intervention Strategy: The MoF aims to create an asymmetric risk-reward dynamic to discourage short positions on the JPY, emphasizing the readiness to intervene "anytime whenever it is necessary."

Conclusion:

Credit Agricole outlines a scenario where the MoF continues to play a critical role in influencing the JPY's trajectory through potential interventions. The report underscores the complexity of Japan's current economic situation, where external factors heavily influence currency movements and internal policy measures may be insufficient alone to prevent further depreciation. The effectiveness of these interventions will largely depend on external economic conditions and the market's perception of the MoF's commitment and capability to defend the yen.