Markets are on edge as Japanese officials warn of possible yen interventions amid rapid Japanese Yen (JPY) depreciation and rising inflation pressures, DBS' Senior FX Strategist Philip Wee notes.

Weak Yen drives most of DXY’s monthly gains

"Markets remain on high alert for JPY interventions. Japanese Finance Minister Satsuki Katayama broke her silence this morning, warning that currency interventions would be a possible response to the JPY’s rapid one-sided depreciation. Her comments followed those of government panel member Takuji Aida, who said interventions may come before the JPY depreciates to 160 per USD."

"The weak JPY accounted for most of the DXY’s appreciation this month – JPY (-2.2%), GBP (-0.6%), CAD (-0.6%), CHF (-0.2%), and EUR (-0.1%)."

"Prime Minister Sanae Takaichi is preparing an economic package to address the cost of living, which led voters to strip the LDP-led coalition of its majority in both houses. Japan’s policymakers have explicitly recognised the link between the JPY’s weakness and inflation, not helped by negative real interest rates."