Synopsis:

MUFG highlights the recent rebound of the yen following a sharp sell-off, indicating a potential increase in intervention risk from Japanese authorities in response to significant fluctuations in USD/JPY.

Key Points:

• Recent Price Movement:
  The yen has modestly rebounded, with USD/JPY falling back to around 152.00 after reaching an intra-day high of 153.19. This month, USD/JPY has risen over 6%, marking the strongest gain for this period since late August/early September 2022, which preceded a government intervention to support the yen.

• Speculation of Intervention:
  The recent price action has fueled speculation about possible intervention from Japan. However, intervention appears unlikely before the US elections, as a Trump victory and a Republican sweep could lead to further increases in USD/JPY.

• Official Comments:
  Market speculation about intervention was bolstered by Finance Minister Kato's remarks, noting “one-sided, rapid moves” in forex markets. He emphasized the need for close monitoring, which provided temporary support for the yen.

• Future Outlook:
  While the yen gained slightly from these comments, its strength may be short-lived if US yields and the dollar continue to rise in anticipation of the election outcomes. Renewed yen weakness could prompt the BoJ to accelerate plans for monetary tightening post-election.

Conclusion:

MUFG warns that the risk of intervention from Japan is rising as USD/JPY experiences significant fluctuations. The situation remains sensitive to upcoming US election results, which could further influence the yen's performance and Japan's monetary policy direction.