The JPY has strengthened sharply, driven by speculation over imminent intervention risks, as detailed in the report by MUFG's Lee Hardman and Abdul-Ahad Lockhart. The USD/JPY pair has seen significant movement, with a decline from 159.23 to 153.40. The report discusses the potential implications of coordinated intervention between the U.S. and Japan.

Intervention risks drive JPY strength

"The scale of the yen’s rebound has been fuelled by reports that the Federal Reserve Bank of New York contacted financial institutions on Friday to ask about conditions in the JPY market."

"Both Japanese authorities and the Trump administration have expressed concern about yen weakness. Treasury Secretary Bessent has previously called on the Bank of Japan to accelerate monetary tightening to address JPY depreciation."

"While this is not our base-case scenario, it cannot be completely ruled out. The last time Japan and the U.S. intervened together in the FX market was in March 2011."

"If the JPY continues to strengthen, market participants are likely to become increasingly wary of the risk of a more disruptive unwind of JPY-funded carry trades."

"Such a development would threaten the recent outperformance of high-beta carry currencies, including the AUD among G10 currencies."

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