Bank of Tokyo-Mitsubishi UFJ (BTMU) believes that the risk of direct intervention to dampen yen strength remains relatively low in the near-term although is higher following Chief Cabinet Secretary Suga’s comments over the weekend.
"It will likely require a further sharp strengthening of the yen to more materially raise the likelihood of direct intervention. We also believe that the strengthening of the yen is justified by fundamentals and is not just driven by speculation," BTMU adds.
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"As a result, we remain sceptical that direct intervention would reverse the strengthening trend for long with the yen still modestly undervalued. However, the comments from Chief Cabinet Secretary Suga will make the market more nervous over the risk of direct intervention which may at least help to dampen further yen strength in the near-term," BTMU argues.