Yen Under Pressure with Heightened Volatility, Intervention Risks Rise

【Yen Under Pressure with Heightened Volatility, Intervention Risks Rise】

⑴ The yen fell over 2% last week, marking its largest weekly decline in nearly a year, and this week's trading could be turbulent.

⑵ Japan's three-day holiday through Wednesday will reduce market liquidity, potentially amplifying yen volatility and increasing the impact of official intervention.

⑶ Reports that officials conducted a rate check on Friday have already raised intervention risks.

⑷ Japan used a record amount of approximately 15 trillion yen for intervention in the one-month period through August 26.

⑸ The Bank of Japan raised its policy rate to 1.25% last Friday but provided no clear guidance on the pace of future hikes.

⑹ Markets currently price in less than a 20% probability of another hike in October, while the probability for December is near 90%.

⑺ Earlier this month, the yen strengthened on expectations of faster BOJ tightening, unwinding of yen carry trades, and potential shifts by Japanese pension funds toward domestic assets.

⑻ That momentum has faded as the Federal Reserve also hikes, with concerns that the BOJ may struggle to keep pace with U.S. tightening.

⑼ The yen is under renewed pressure, and close attention should be paid to official intervention moves and central bank guidance going forward.