Synopsis:

MUFG notes increased rhetoric from Japan's Ministry of Finance (MoF), with Finance Minister Suzuki warning of "bold action" if unwarranted yen depreciation continues. Since the Bank of Japan's (BoJ) rate hike, the yen has been the second-worst performing G10 currency, overshadowed only by the Swiss Franc's performance, which was influenced by the SNB rate cut. The correlation between yield spreads, the US dollar, and USD/JPY suggests an overshoot of the spot rate, potentially prompting intervention from the MoF, deemed speculative post-BoJ hike.

Key Points:

• Renewed MoF Rhetoric: Finance Minister Suzuki's statement underscores Japan's readiness to intervene in the forex market to curb speculative yen depreciation.
• Post-BoJ Rate Hike Dynamics: The yen's performance, second only to the CHF in weakness among G10 currencies, is closely watched following the BoJ's decision to raise rates.
• Yield Spread and USD Correlation: There's an apparent overshoot in USD/JPY's spot rate when compared to yield spreads and the dollar index, hinting at speculative forces at play.
• Potential for Intervention: The BoJ and MoF may intervene if USD/JPY's rise, currently capped by option-related barriers, extends sharply above current levels.

Conclusion:

MUFG emphasizes the heightened likelihood of intervention by Japan's MoF and BoJ should the yen continue to depreciate sharply, particularly in the wake of speculative trading post-BoJ rate hike. The current situation, marked by a potential cap due to option-related barriers, keeps the spotlight on USD/JPY for further moves and possible governmental action.