Early on Tuesday in Tokyo trading, the yen was trading near the 151.80 mark, only a hair’s breadth above this year’s low of 151.97 per dollar, and 152, a crucial psychological threshold that many believe may set off action from Japanese authorities. 

Stronger Than Expected

But as they await Wednesday’s March inflation statistics, strategists at the British bank anticipate that policymakers will leave their red line more ambiguous.

They warned that an overly hot reading would dollar buying. FX analysts Steve Englander and Nicholas Chia stated in a research report on Monday that “on a stronger-than-expected US CPI number, we think the BoJ could back off until buying has been exhausted,” adding that a spike in yen selling could indicate authorities won’t intervene until roughly

Modest Shocks

The analysts estimate that if authorities want to support the yen, they will probably need to spend more money than the $60 billion they did for intervention in September and October of 2022.

They stated that “a bit of intervention is rarely enough, like eating snack foods.” Although US President Fumio Kishida is expected to visit the country this week and Washington may issue a statement endorsing any policy measures, Standard Chartered estimates that the likelihood of a coordinated intervention is only 20%.

Japan will carry out the FX intervention alone, possibly with the US’s tacit approval, according to Englander and Chia. As an alternative, policymakers can find some solace in a modest US CPI number.

Leveraged funds and asset managers’ combined short yen bets have risen to a 17-year high. The strategists noted that the currency bears are exposed to “modest shocks in the opposite direction” as a result of their stretched strategy.