The BoJ again hinted at intervention, but the market seems determined to test bankers’ patience.

Just as the yen hit a 10-month low against the dollar and there were rumors of a higher yen inflation tolerance from the BoJ, the government stepped in with a verbal warning to markets.
“If these moves continue, the government will deal with them appropriately without ruling out any possibility,” Masato Kanda, the vice finance minister for international affairs, said on Wednesday.

-Kanda said that currencies should move steadily in the market in reflection of economic fundamentals, noting that there have been sharp speculative moves this year, like last year.
“We are watching the market with a high sense of urgency,” he added, which was taken as the strongest warning in recent months.
-“These developments bring uncertainty to businesses and households, which will have a negative impact on the economy.” .
-The yen reacted positively to the comments, pulling back from the bottom, supported by an increased likelihood of BoJ intervention if devaluation continues, but the market seems determined to test bankers’ patience.

Japan’s monetary policy stance is contributing to the yen’s weakness.
While the Fed and other G10 central banks have raised interest rates aggressively in response to galloping inflation, the BoJ has stuck firmly to the latest remained negative interest rates among advanced economies, showing their tolerance for inflation.
-Even if the BoJ loosens its grip on the 10-year government bond yield in July, it is still holding back upside. Until the central bank takes a clearer step toward reducing its stimulus, pressure on the yen is likely to remain.
-Japan’s government is unlikely to re-enter the markets unless absolutely necessary and that is tempting currency traders to test bankers’ patience levels, according to market strategists. -BoJ officials have been largely silent in recent days as the yen has weakened. They have repeatedly said in the past that their concern is more about sharp movements in the yen than specific levels against other currencies.
-Last year’s interventions worth about 62 billion. dollars came after the currency rose sharply against the dollar within 24 hours. It currently appears that there is still some way to go before a real intervention, with market participants taking the psychological level of ¥150(yens) to the dollar as a trigger for the BoJ.