The JMP Weekly Report

USDJPY initially rose above 159 after the BoJ kept policy rates unchanged and Governor Kazuo Ueda delivered dovish comments at the press conference, but subsequently fell sharply to 157.4 due to suspected finance ministry intervention.

• While FX intervention is not a sustainable method to contain
yen weakness, it nonetheless stabilizes market sentiment, and
discourages speculators from aggressively pushing the yen weaker.
• We maintain a medium-term view of JPY recovery, but acknowledge
that this hinges on the Japanese government’s ability to convince
markets that there is a clearly laid-out plan for fiscal debt
sustainability.

USDJPY initially rose from 158.6 to 159.2 after the Bank of Japan (BoJ) kept policy rates unchanged, and Governor Kazuo Ueda stuck to a “patient” policy bias at his press conference. However, soon after the press conference ended, USDJPY fell abruptly from 159.2 to as low as 157.4 due to suspected FX intervention (or “rate check”) by Japan’s finance ministry.

While FX intervention is widely acknowledged to be an unsustainable method to contain yen weakness, it nevertheless achieves several objectives. First, it sends a stronger message (compared to verbal intervention) that further yen weakness is not welcomed by policymakers.

Second, it discourages speculative FX traders, by making the risk-reward poorer (to speculate on yen weakness). Third, it augments the expectations of Japan corporations and investors, who might be encouraged to convert the US dollar into the yen, if there is increasing confidence that Japanese policymakers are leaning against yen weakness.

To achieve a more sustainable stabilization in the yen, two key factors need to be achieved. First, on the monetary policy side, the BoJ needs to be more aggressive in policy tightening. Although long-term interest rates are moving into positive territory (following the rise in long-term bond yields), it is also crucial to push short-term interest rates into positive territory, in order to slow capital outflows. Second, on the fiscal policy side, the government needs to restore investors’ confidence that fiscal prudence will be maintained. However, fiscal concerns are likely to persist in the near term leading up to the snap election due on 8 February, where we could see increasing election campaign-related rhetoric on consumption tax cuts (or other forms of fiscal support).

Overall, while this week’s suspected FX intervention might offer a short-term reprieve for the yen, our medium-term view for JPY recovery (152 for June 2026, 148 for December 2026) hinges crucially on the Japanese government’s ability to convince markets that there is a clearly laid-out plan for fiscal debt sustainability. We believe this should emerge once the LDP coalition secures a larger majority in the Lower House at the upcoming election. Meanwhile, we keep our forecasts unchanged and continue to monitor the ongoing political developments.

Investment implications
Prospects: We maintain a medium-term view of JPY recovery, but acknowledge that this hinges on the Japanese government’s ability to convince markets that there is a clearly laid-out plan for fiscal debt sustainability. We believe this should emerge once the LDP coalition secures a larger majority in the Lower House at the upcoming election.

Boundaries: Given this week’s suspected FX intervention by the Japanese finance ministry at 159.2, we believe this marks a strong resistance level, as speculators stay wary of renewed bouts of volatility.
Risks: A sharp escalation in Japan’s fiscal concerns would be the main downside risk for the JPY, in our view.

This report has been prepared by UBS AG Singapore Branch, UBS Switzerland AG.

Regards,