Japan’s Finance Minister Satsuki Katayama joined an online session with other G7 finance ministers to discuss support for Ukraine.

Addressing Currency Movements

Katayama emphasized the need to tackle large trade imbalances. The Bank of Japan (BoJ) plans to implement monetary policies to sustainably achieve its price target. She pointed out the swift changes in currency exchange rates and reiterated Japan’s commitment to helping Ukraine. It’s important for currencies to move in a stable manner that reflects economic fundamentals. The government will take action against extreme currency swings. The BoJ’s recent interest rate hike is intended to help reach the 2% price target. Katayama and BoJ Governor Ueda have had positive discussions, but foreign exchange issues were not part of the G7 talks. The Japanese Yen’s performance against major currencies varied. It gained ground against the New Zealand Dollar but lost value against the US Dollar and Euro. Recent currency changes showed that the JPY fell by -1.07% against the USD and by -1.18% against the EUR, highlighting recent currency fluctuations.

Addressing Weak Yen and Trade Deficits

Katayama’s warning about “excessive moves” signals potential market intervention to strengthen the yen. With the USD/JPY rate nearing 160, a multi-decade high, her warning should be taken seriously, reminiscent of the interventions in September and October 2022 when the rate crossed 150. This concern arises from the yen’s ongoing weakness, which has led Japan to its 18th consecutive monthly trade deficit. While the BoJ has raised rates to address inflation above 2.5%, the yen hasn’t reacted as expected. The weak yen is increasing the costs of imported energy and raw materials. In the upcoming weeks, consider buying put options on major yen pairs like USD/JPY and EUR/JPY. This strategy can protect against a sudden rise in the yen if the Finance Ministry chooses to intervene. Implied volatility for yen pairs is likely to increase, making options strategies appealing. We should be cautious with large short yen positions, as they may face sudden reversals. The end-of-year period typically has lower liquidity, which can lead to more dramatic market movements. Reducing exposure or hedging is wise until the government’s plans are clearer. Create your live VT Markets account and start trading now.

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