• USD/JPY drops slightly after intervention talk from Japan’s chief of FX, Masato Kanda. 
• Recent weakness in the Yen should be attributed to speculation not fundamentals, Kanda said. 
• The authorities may intervene to correct the situation, propping up the Yen. 

USD/JPY is trading down almost a tenth of a percent in the 151.300s at the start of the new week. It has lost ground after intervention talk from Japan’s currency chief heightens speculation the Japanese authorities are about to use market operations to prop up their currency. 

Vice-finance minister for international affairs Masato Kanda, was responding to the weakness experienced by the Yen, which remains at historic lows, after the Bank of Japan’s (BoJ) historic decision to raise interest rates for the first time since 2007 at their policy meeting last Tuesday. The move seemed highly unexpected since higher interest rates are usually a factor that strengthens not weakens currencies.

"The current weakening of the Yen is not in line with fundamentals and is clearly driven by speculation,” Kanda told reporters Monday. "We will take appropriate action against excessive fluctuations, without ruling out any options,” he said, according to a report in the Japan Times. 

When questioned about the possibility of the authorities engaging in direct intervention, or Yen-buying in the open market Kanda said, “We are always prepared.” 

USD/JPY has reached a level, above 150.000, where historically the BoJ has been known to intervene to prop it up, as was the case in 2022 when the currency hit 151.950 against the US Dollar.

Data from the currency futures market seems to support Kanda’s view that speculators drove the move higher following the BoJ decision. During the week of the BoJ’s March meeting, speculators, such as hedge funds, actually increased their bearish (short) bets on the Yen, according to data from the Commodity Futures Trading Commision (CFTC), despite widespread rumors the BoJ was going to hike rates. 

From a technical perspective the USD/JPY has formed a bearish Hanging Man Japanese candlestick pattern (circled) on Thursday, suggesting a heightened risk of a short-term reversal and pullback