ATFX: Japan Issues Strongest Intervention Warning, Early Election Adds to Yen Volatility

Deep News
01/27

On January 27, ATFX: On Monday, as the US dollar fell across the board, the Japanese Yen jumped to its highest level against the dollar in over two months, with speculation heating up about a joint US-Japan intervention in the foreign exchange market following statements from the Japanese Prime Minister and the Vice Minister of Finance for International Affairs. The USD/JPY pair has fallen nearly 3% over the past two trading sessions, marking its largest decline since the market turmoil around last April's "Tax Freedom Day," which was triggered by Trump's tariff policies. The Yen is currently hovering near its highest level against the US dollar since last November, having earlier this year fallen to its lowest point since July 2024. On Sunday, against a backdrop of a weak Yen and high bond yields, Japanese authorities issued a fresh warning to financial markets, stating the government is prepared to take action. Japanese Prime Minister Sanae Takaichi warned that the government is ready to prevent any "highly abnormal" market movements. This came amid signs that the United States might unusually join Japan in defending the Yen. Japan's Chief Cabinet Secretary stated at a regular press conference on Monday that Japan will coordinate closely with the United States and act in accordance with the agreement reached by the two countries' finance ministers last September. On Friday, traders reported that the Federal Reserve Bank of New York had contacted financial institutions to inquire about the Yen's exchange rate. According to Bloomberg data, the Japanese government spent nearly $100 billion in 2024 buying Yen to support its currency. In these four Yen-buying operations, the USD/JPY rate was around 160 Yen, thus setting that level as a rough reference point for potential future action. A slightly stronger Yen helps curb imported inflation, particularly the inflation driven by rising food and energy prices, which has been a major concern for households. Meanwhile, a slightly weaker US dollar aids President Trump's goal of boosting manufacturing by making US products cheaper overseas. Simultaneously, as campaigning for Japan's snap election gets underway, investors are bracing for greater volatility in the bond market, the risk of government intervention in the forex market, and frequent fluctuations in stock prices. With just two weeks until the election, although Takaichi's approval ratings have recently dipped, they remain above 60% in most opinion polls. Previously, Takaichi pledged to cut food taxes, a move that has caused significant turbulence in the Japanese debt market over the past few days. Market participants point out that after the snap election, the USD/JPY pair still has room to rise. Signs that Japan and the US might jointly support the Yen would make it difficult for the Yen to break through the range of 156-157 Yen per dollar. However, without intervention, a breach of this range could potentially lead to a surge above 160 Yen. Driven by both election noise and the threat of intervention, Yen volatility is expected to remain high. If Sanae Takaichi (the incumbent Prime Minister) is re-elected as polls suggest, the market would view this as a signal of "policy continuity," meaning the continuation of a path centered on loose monetary policy and aggressive fiscal spending, which constitutes a moderate bearish factor for the Yen in the medium to long term.

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