MUFG highlights the recent momentum of USD/JPY, which reached a new high of 147.82 earlier today. Given the heightened rhetoric from Japan's Ministry of Finance (MoF), MUFG sees an increased risk of imminent currency intervention by Japan to prevent USD/JPY from reaching the 150 level.

Key Points:

• USD/JPY Momentum: The currency pair recently touched a new high of 147.82, the highest since November 4 of last year.

• Heightened Rhetoric: Masato Kanda, Japan's Vice Finance Minister for International Affairs, stated that the MoF is monitoring FX with a "high sense of urgency" and would not "rule out any options" if the yen continues to depreciate.

• Previous Signals: This language is similar to the wording used just prior to Japan's last currency intervention, indicating an elevated risk of imminent action.

• Protecting a Level vs. Curbing Volatility: Notably, intervening at this point could be perceived as protecting a specific exchange rate (150) rather than maintaining market stability, which could invite scrutiny.

Trading Recommendations:

• Be Cautious: Traders should exercise caution when dealing with USD/JPY due to the elevated risk of intervention by the Japanese authorities.

• Watch for Intervention: Stay alert for signs of intervention, which could cause sudden and significant volatility in the currency pair.

• Consider Protective Measures: Given the high likelihood of intervention, traders may consider protective measures like stop-loss orders or hedging strategies.

Implications:

For Traders:

• Volatility Ahead: Traders should brace themselves for potential abrupt moves in USD/JPY if intervention occurs.

• Risk Management: Implement stringent risk management strategies to mitigate the impact of sudden market moves.

For Policymakers:

• Perception Risk: Intervening to protect a specific level could be perceived as manipulation, rather than maintaining market stability, potentially complicating diplomatic and trade relations.

Conclusion:

MUFG sees a heightened risk of imminent intervention by Japan's MoF to prevent the USD/JPY from breaching the 150 level. Traders should be cautious and consider protective measures due to this elevated risk. Policymakers also need to weigh the potential perception risks of such an intervention.