MUFG: The JPY

The yen has continued to trade at stronger levels overnight after strengthening at the start of this week on the back of fresh warnings from Japanese policymakers over the threat of further intervention. 51 after He added that markets should take that message at face value, saying he would be watching closely to see whether they do. He remains neither satisfied nor reassured by the yen’s recent moves. The report by has been followed by comments overnight from Finance Minister Satsuki Katayama who told reporters that "as Takaichi said during the recent Japan-US commit in New York, and I believe, generally speaking, the undervaluation of the yen is a problem”.

She reiterated that "we will continue to maintain close communication between Japanese and US financial authorities and work to maintain orderly conditions in the foreign exchange market". Finance Minister Katayama held a phone call with US Treasury Secretary Scott Bessent on Friday in which both officials reaffirmed shared concerns over the yen's undervaluation and agreed to further strengthen cooperation. She reportedly told Scott Bessent that Prime Minister Sanae Takaichi is not a reflationist to reassure him that the government is not seeking unchecked expansionary policies. At the same time.

Finance Minister Katayama indicated that she is not overly concerned by on the ongoing rise in JGB yields. She stated that she shares the measured view of Stanley Druckenmiller and Jamie Dimon that the rise in yields in Japan is not particularly large compared to other major bond markets. There was good news for ultra-long JGBs overnight when the latest 40-year auction drew its strongest demand in six years. 67.

Another tentative sign that higher yields are beginning to make JGBs more attractive. The JGB curve has flattened significantly in recent months as short­term yields have risen much more than longer-term yields. Overall, the comments from Japanese officials at the start of this week continue to send a strong signal that Japan is prepared to intervene against to support the yen. They are also encouraging speculation that Japan will also make other policy adjustments to provide more support for the yen such speeding up the pace of BoJ rate hikes under pressure from the US.

The BoJ has already sped up the pace of hikes this month (every three months) and signalled that a faster pace of hikes is likely to continue heading into year end. We expect the next hike to be delivered in December while the Japanese rate market is attaching a higher-than-normal probability ('36%) to a back-to-back hike next month. The latest developments are helping to cap further upside for USD/JPY even as the US dollar strengthens broadly. It is helping to the yen to outperform other G10 currencies in the near-term.