[MARKET ANALYSIS] JPY mildly firmer amid the latest jawboning

• JPY is currently mildly firmer vs the USD, but has been subject to some volatility amidst continued jawboning from Japanese officials. Earlier, Cabinet Secretary Kihara said they will take appropriate action to deal with excessive movements in FX – this largely echoed the remarks made by the Keidanren Chief in the prior session. Thereafter, Katayama spurred some modest strength in the JPY after she said that “nothing is excluded” in relation to dealing with FX moves, adding that she had FX talks with Bessent. As a reminder, Katayama recently said Bessent shares the same concerns about a weak JPY – a point which perhaps indicates some acceptance to intervention by the US-side. Thereafter, the FX Diplomat Mimura spurred another bout of strength in the JPY after he reiterated Katayama’s comments.
• USD/JPY currently trades within a 158.67-159.45 range. As a reminder, a move beyond the 159.00 mark and into 160.00 territory brings USD/JPY to July 2024, levels where Japanese officials have previously carried out intervention.
• More broadly, JPY pressure over the last few days was spurred by the "Takaichi trade" resuming. Amid reports and around PM Takachi’s plans to call a snap election; since, the leader of the Ishin party confirmed her plans, with details due on Monday. SocGen analysts believe that her party is unlikely to enact aggressive fiscal expansion given recent debt concerns, instead, see recent events as an opportunity to go short USD/JPY.

The JPY is showing mild firmness against the USD amid ongoing remarks from Japanese officials aimed at managing excessive FX volatility. This is significant as it suggests increased readiness for intervention if the JPY weakens further, particularly with USD/JPY approaching key levels where past interventions have taken place. The evolving political landscape in Japan, with potential implications from PM Takachi's snap election plans, adds further complexity to the outlook for Japanese monetary policy and currency strength.