We will continue to monitor comments from policymakers, especially Finance Minister Aso and Mr Asakawa, to assess the likelihood of FX intervention.
We believe the likelihood of FX intervention will be much higher if USD/JPY undercuts 105 rapidly, and the level of verbal intervention is likely to be higher.
For Japan to gain approval from the US to intervene in the market, it will be important for Japanese policymakers to decide on fiscal and monetary stimulus to show its own efforts to boost the Japanese economy before relying on intervention to weaken JPY. If Japanese data are expected to weaken further this should also help justify JPY selling intervention.
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In the near term at current levels, we think FX intervention is still unlikely and a BOJ additional easing at an emergency meeting is unlikely too before the next scheduled meeting on 27-28 April.
Thus, near-term downside risks on USD/JPY cannot be ruled out in the short term, but concerns over FX intervention will likely keep rising while policy stimulus from Japan will also likely limit downside risks on USD/JPY. Thus, we still see a recovery in USD/JPY in the medium term.