The market will likely continue to test higher USD/JPY levels. Then there are two possibilities: Either the MOF intervenes, or JPY depreciation accelerates as the risk of intervention is priced out.

In the medium to long term, intervention cannot prevent depreciation, especially if the BoJ maintains depreciation pressure by continuing its ultra-expansionary monetary policy. The only logical response would therefore be an at least gradual normalization of monetary policy, probably through further easing of the yield curve control (YCC). However, it is not certain that easing the YCC would be sufficient, nor is it certain that the BoJ will change anything at its meeting on Tuesday. Not everything about Japan's monetary and exchange rate policy is always logical.