Risk of yen intervention is 'relatively small,' says financial services firm

It it, it looks like dollar yen is in intervention territory. If it does come, what form will it take and how effective will it be? Look, I think you know, as you know, intervention in the currency market. You know, it’s a very, very dangerous game if it’s not followed up by concrete policy changes. And quite frankly, of course, the Ministry of Finance right now is concerned with the pickup in volatility. You know, you basically go from 1:50 to 1:53. That’s something that makes the authorities uncomfortable. But you know, if it’s a gradual continued decline, I actually think that the risk of intervention is actually relatively small. Verbal intervention, yes, but actual action. I think for that you’d need to go into the 16165 level. And in terms of what’s driving Dolly yen, it’s really hawkish repricing off the Fed rather than BOJ expectations. Is it or is it or is it the latter? Because there is a sense that the Bank of Japan is still very much in the game here and has only taken a very teeny weeny step towards normalisation. Look and and and and you know I mean the the the forces that got the yen from one hundred 110 a couple of years ago to 100 and 5153, those very forces are still intact and it is just the interest rate differential. And at the end of the day you know so far the beginning of normalization of interest rates in Japan has not done anything. As you know, the yen is actually weakened since the Bank of Japan moved, you know, a couple of weeks ago here. And you know the question really for markets and for strategists like myself, the real question is like is the Bank of Japan now at risk of being behind the curve? Is it starting to do too little, too late because you actually do see the inflation momentum, the wage momentum, the asset price momentum here in Japan continuing to grow and again continues to weaken. So that does start to set off some alarm bells. The Bank of Japan is behind the curve, but arguably yes. But the counterfactual here is that the recent wage increases that you refer to only benefit minority of unionised just the unionised workers as opposed to the workers who work for the majority of workers at the SM ES. So isn’t isn’t the overall impact and the virtuous cycle going to be minimal in terms of inflation? Plus, from what I understand, the Japanese consumer is still tough sledding. Look, I mean, the reality is that you’ve got one in four people living off a pension here. And whether the stock market goes up or whether wages go up doesn’t have any impact. In fact, pensioners won’t be heard by the reality of food prices and energy prices going up. So in aggregate, consumer spending is not going to become a big driver of the economy. But the question for the Bank of Japan is, do you get that demand, full inflation that is now starting to come in, which continues to be compounded by imported inflation by bad inflation because goods prices, food prices, energy prices all are going up together with service prices going up there, that does start to need a stepping on the brake that becomes a little bit more decisive, particularly if you don’t get a response from the rate increases in the currency markets, which is exactly what has happened over the last three weeks.