USD/JPY Hits Fresh 40-Year Highs Amid Gradual and Managed Move

The USD/JPY currency pair has been making fresh 40-year highs, reaching levels not seen since December 1986. Despite some initial trepidation in May and a brief scare in early July, traders have become emboldened to take the pair higher with the US-Iran conflict reigniting.

The move has been gradual and managed, with volatility levels remaining relatively low. The 1-month implied volatility in USD/JPY fell below 6% last week for the first time since February 2022, which MUFG believes does not warrant any intervention from the MOF just yet.

Finance Minister Katayama has commented on the yen's weakness, attributing it solely to the worsening situation in the Middle East. However, he added that 'we will take appropriate and bold action at any time, should the need rise', suggesting a lower sense of urgency than in previous times when intervention took place.

Part of the reason for this resignation is the fact that the fundamentals have worsened for the yen currency itself. The US-Iran war has reignited, tightening oil supply and pushing energy prices higher, which will continue to weigh heavily on Japanese firms as inflation worries grow.