The USD/JPY has surpassed the 128 level. How much yen weakness is tolerable? According to economists at Commerzbank, the bar for FX interventions is very, very high.

Kuroda is in a catch-22 situation

“Kuroda is in a catch-22 situation. Should he raise interest rate levels despite continued negative core inflation rates? That too would be unhelpful. The instrument of choice would be one that is aiming exactly at the yen exchange rates. And the first instrument one can think of is FX market interventions.”

“I think that for the time being the MoF and BoJ will try ‘verbal’ interventions and will sound continuously more concerned about the yen-weakness. In the hope that the market will end the yen collapse for fear of interventions. In poker, I suppose one would call that ‘bluffing’.”