UBS Group strategists have indicated that the Japanese yen's decline is expected to persist, despite Japanese officials intensifying their intervention rhetoric. These strategists project that under a "prolonged turmoil" scenario, the USD/JPY exchange rate could reach 175 by year-end. Strategists, including Shahab Jalinoos, noted that if oil prices surge to around $150 per barrel, "using foreign exchange intervention to try and control inflation could ultimately result in depleting foreign exchange reserves while providing the market with a higher level to sell the yen, without necessarily altering the exchange rate trend." They further added that efforts to curb inflation might increasingly rely on fiscal measures, such as energy subsidies. In such a scenario, markets may conclude that Japanese policymakers are not inclined to prevent yen weakness amid a global stagflation environment, and the resulting terms-of-trade shock would significantly drive the USD/JPY rate higher. This perspective emerges as the USD/JPY rate surpassed the 160 mark last Friday for the first time in 2024, prompting increasingly stern warnings from policymakers. Japan's top currency official, Atsushi Mimura, highlighted the risk of "decisive action," while Bank of Japan Governor Kazuo Ueda reiterated that exchange rate movements are a factor in policy considerations. Finance Minister Shunichi Suzuki also signaled readiness to respond, underscoring heightened vigilance against further yen depreciation.
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