Jpy monthly2609

Key arguments

• Coordinated intervention (JPY15.4tn) has been more effective than previous solo efforts, with USD/JPY retracing only half of the initial decline after a month, reducing the risk of a 2022-style depreciation spiral.
• Markets now price in a September BOJ hike (>90%) as part of the quid pro quo for US support, but it is unclear if the government accepts a rapid series of hikes toward the neutral rate.
• Fiscal concerns (consumption tax cut, record budget requests) may weigh on the yen, and Cabinet reshuffle could affect fiscal policy direction.
• Fed Chair Warsh's hawkish Jackson Hole speech revived September hike expectations (~60%), but data dependence means expectations could recede, potentially weakening the dollar.
• US Treasury Secretary Bessent's stance on currency coordination and China's trade surplus may lead to G20 discussions with implications for FX policy.
• Trade deficit widening due to Middle East energy costs and higher import prices, but stable oil prices and intervention reduce the likelihood of an accelerating yen depreciation spiral.

Corresponding source evidence

1. However, it remains unclear whether the government would accept a rapid series of rate hikes toward the neutral rate, and fiscal concerns are also likely to weigh on the yen.
2. In the US, hawkish remarks from Fed Chair Kevin Warsh have revived expectations of a September rate hike, but such expectations could still recede depending on the employment and inflation data.
3. Japan's trade deficit remains a source of yen weakness, but the impact of intervention, more stable oil prices, and the prospect of further BOJ rate hikes make an accelerating yen - depreciation spiral like that seen in 2022 less likely. · 2022