Recently, numerous JPY pairs have breached the levels where the BoJ / MoF intervened in April/May, prompting markets to wonder if (and when) authorities might step in again to support the Yen.

The reaction in USDJPY post key events/meetings has been consistently uniform for the past 12-18 months. Markets build up a hawkish narrative prior to the event, only to unwind positions when the news turns out to be less hawkish than anticipated. We saw this with the appointment of Ueda in February 2023, where markets initially interpreted the move as hawkish. Similarly, the most dovish hike away from the ZIRP regime seen across central banks in 2023 was only fully accepted by markets 1-2 days after the event.

Things have changed lately, with the rhetorical interventions from officials not having the desired impact on price action – the BoJ has likely lost its ability to impact markets verbally. Market pricing in the option space also indicates that markets are not worried about an intervention, with implied volatility (IV) still in the 5-10 range. This poses two important questions, which we aim to answer in this post:

1. The BoJ clearly knows that their verbal intervention efforts are not working, so what are their true intentions? Do they purposely want the JPY to weaken further and try to control the pace of weakening instead?
2. If they want to intervene, what are potential triggers for such an intervention? Levels are clearly not important.

Chart 1: Option IV does not point to markets being overly worried about an intervention