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Mar 25 - 06:55 PM

MUFG: Assessing Japan's Verbal Intervention and Impact on JPY

By eFXdata  —  Mar 25 - 03:00 PM


MUFG examines Japan's response to the recent weakening of the yen, particularly after the Bank of Japan's policy adjustments aimed at combating higher inflation. Despite these changes, USD/JPY approached two-year highs, prompting concerns among Japanese officials reminiscent of previous years' currency pressures. The analysis highlights Japan's potential recourse to verbal intervention to stabilize the yen and examines the context and expected impact of such measures.

Key Points:

  • Yen Weakness Context: Following the Bank of Japan's move away from negative rate policy and yield curve control, the yen weakened, nearing two-year highs against the USD. This trend mirrors past episodes of yen depreciation that prompted official responses.
  • Past Interventions: In 2022, direct intervention by Japanese officials supported the yen temporarily. However, in 2023, speculation on Fed rate cuts facilitated a natural yen rebound, without the need for intervention.
  • Pressure on Japanese Officials: The recent adjustment of Fed rate cut expectations, coupled with stronger US inflation data, has put pressure on Japanese authorities to act in support of the yen.
  • Verbal Intervention Expected: MUFG anticipates that verbal warnings from Japanese officials, particularly from top currency official Masato Kanda, will temper further USD/JPY gains in the near term. Kanda's statements underscored the speculative nature of the yen's recent movements and the readiness to act against excessive fluctuations.
  • Market Implications: Kanda's remarks signal heightened alertness to yen market dynamics and a willingness to employ both verbal and potentially direct interventions to maintain currency stability.


MUFG anticipates that Japan's verbal intervention will serve as a near-term deterrent to further yen depreciation, echoing past responses to similar currency pressures. While the effectiveness of verbal interventions in fundamentally altering market trends may be limited, they reflect Japan's proactive stance in monitoring and potentially addressing speculative movements in the yen. This analysis underscores the ongoing challenges faced by Japanese officials in navigating global monetary policy shifts and their implications for currency stability.

MUFG Research/Market Commentary


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