Lee Hardman, Currency Analyst at MUFG, suggests that the verbal intervention from Japanese officials has had only a limited impact at dampening yen strength in the near-term. Key Quotes “However, it was more notable that Japanese Chief Cabinet Secretary Suga stated in an interview with Reuters over the weekend that the G20’s agreement to avoid competitive currency devaluations does not mean that Japan can not intervene in response to one-sided currency moves. He stated as well that Prime Minister Abe’s comment to the Wall Street Journal last week that countries should avoid “arbitrary intervention” was misunderstood and does not rule out intervention for Japan. He explained that “what the G20 is talking about is arbitrary intervention, which is different from responding to a one-sided move”, and that Prime Minister Abe’s “comments were based on the G20 understanding that long-term manipulation of currencies is undesirable”. It is clear that there has been some backtracking from Japanese officials with the aim to send a stronger signal to the market that the threat of direct intervention is higher than previously assumed. As a result further comments overnight from Chief Cabinet Secretary Suga carry more weight after he stated that Japan is watching FX moves with vigilance and will take necessary action on FX if needed. He added as well that they are seeing speculative moves in the markets. It is consistent with the release of the latest IMM report which revealed that speculative long yen positions have reached a record exceeding the peak from early in 2008. However, in net terms after subtracting short yen positions, the overall net long yen position still remains around a quarter below the peak from during 2008. We still believe 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. 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.” For more information, read our latest forex news.