TD Securities Senior Macro Strategist Alex Loo argues that despite Japan’s political shift under PM Takaichi, the Japanese Yen is likely to underperform, with markets eyeing the 160 level in USD/JPY as a key trigger for Ministry of Finance action. Loo highlights elevated intervention odds, especially if upcoming US data fuel a tactical rebound in the Dollar.

MoF vigilance as USD/JPY eyes 160

"A fairly muted reaction in both JPY and JGBs during Asia session suggests that the event was largely priced in. We think the steepening bias in JGBs will continue and expect JPY underperformance. JPY intervention odds remain high, especially if USDJPY crosses 160 in the coming days on a tactical rebound in USD strength."

"We think the steepening bias in JGBs will continue, and for JPY underperformance. Markets could start to reprice in a full 25bps hike at its April meeting on the back of these x-asset moves, earlier than our BoJ call for a July hike."

"Levels still matter to the MoF as the 160 level in USDJPY attracts heavy onshore media attention. Earlier during the Asia open, Japan's top FX official Mimura warned again that the MoF is watching FX markets with a high sense of urgency, signalling its discomfort for any move higher in USDJPY."

"We have US NFP and CPI this week and an upside surprise in both data prints may drive a tactical rebound in the USD. In the case of a rapid move beyond 160, we expect the MoF to intervene in the FX market, possibly with the help of the US since the reaction in JPY and JGBs may spill over to the US market."

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