"The yen has been undermined overnight as well by Japanese policymakers stepping up verbal intervention in response to USD/JPY falling below the 100.00-level. The Vice Minister for International Affairs Masatsugu Asakawa has stated that Japan is closely watching for "speculative" moves with a strong sense on concern. He noted that price action could be exaggerated in thin summer markets. If there are extreme FX moves he warned that Japan will have to act while keeping in close contact with other G7 nations.

Verbal intervention may help temporarily to dampen yen strength but it will not reverse the stronger yen trend. We still believe that direct intervention remains unlikely in the near-term given strong opposition from the US.

The upcoming US Presidential election could make Japan even more sensitive about intervening given the focus on protectionism. It is also difficult to argue that fundamentals justify intervention. While the yen is stronger now we believe that it is only closer to fair value, and yen volatility has eased recently".

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