MUFG's Derek Halpenny highlights that higher energy-related inflation, fiscal slippage risks and potential sharp Japanese Yen (JPY) depreciation above 160.00 in USD/JPY are adding to JGB selling pressure. While Finance Minister Katayama has escalated intervention rhetoric, Halpenny expects actual FX intervention if USD/JPY breaks 160.00, and does not rule out possible US involvement given Washington’s discomfort with Dollar strength.

Yen vulnerability and JGB pressure

"Higher energy-related inflation, the potential for further fiscal slippage to provide households with cost of living support, and the risk of a sudden sharp bout of yen depreciation on a break of 160.00 in USD/JPY all add to JGB selling pressure."

"Finance Minister Katayama today certainly upped the rhetoric on intervention but words are losing value."

"How quickly intervention takes place above the 160-level is also unclear and given the fundamental backdrop, the MoF may allow a more extended move than is currently assumed."

"We would still expect intervention though and don’t rule out US involvement either."

"It’s a risk (rather than a core view) given the Fed checked rates in USD/JPY in January and Washington generally is unhappy with dollar appreciation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)