Citi warned that the Japanese yen may face government intervention if the Bank of Japan maintains its current policy stance during this month’s monetary policy meeting.
Despite broad weakness in the dollar, the USD JPY pair remained elevated throughout April after gaining strength in March at the start of the Iran conflict. Meanwhile, EUR JPY reached a new record high during the same period.
The bank expects that if no policy changes are introduced, the dollar could move above the 160 yen level, which may prompt Japanese authorities to step in by buying the yen and pushing it toward the 155 level against the dollar.
Markets initially reacted to the Iran conflict with a traditional rise in the dollar as a safe haven, before reversing direction and weakening in April, while the yen failed to benefit from this shift.
Citi also noted that the effectiveness of any government intervention will depend on maintaining a consistent fiscal policy and ensuring the independence of the Bank of Japan.
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