This week is an “ultra-super week” packed with back-to-back events: the [U.S. FOMC] in the early hours of Thursday, [German GDP] and the [Bank of England meeting] in the evening, [U.S. GDP] late at night, and the [Bank of Japan meeting] on Friday.
Thursday, in particular, will see a concentration of central bank meetings and key economic data from Europe and the U.S., so the highest level of caution is required regarding extreme volatility across all currencies—the dollar, pound, euro, and yen.

In Japan, the Takaichi Cabinet has finalized its Basic Policy.
Looking at the wording regarding monetary policy—which has drawn particular attention—the statement added the phrase “achieving stable price increases” at the beginning, emphasizing that it is extremely important to conduct appropriate monetary policy operations that contribute to this goal.
Sustained price increases have become a mandatory target, and there is virtually no implication of curbing inflation.

The target is a 3% nominal economic growth rate, with the goal being a real growth rate exceeding that by 1%; however, it is sufficient if the real growth rate rises steadily.
However, there is a perception that as long as nominal growth reaches 3%, it is acceptable even if real growth remains low, which suggests that inflation will continue going forward.

Japan’s two-year interest rate has risen to 1.50%, and the probability of a Bank of Japan rate hike in October is gradually increasing.
The yen has weakened since the adoption of the Basic Policy; while there was a reference to Article 3 of the Bank of Japan Act, it was merely added as a footnote, and it was abundantly clear that this was included as an excuse for the market.
The market, keenly sensing the Takaichi administration’s intentions, pushed the yen lower. The dollar-yen exchange rate weakened to around 164 yen, reaching approximately 163.98 yen.

While the situation in Iran and rising crude oil prices could be cited as factors behind the yen’s weakness, considering that the dollar has not strengthened significantly against other currencies, it is clear that the “Comprehensive Policy Guidelines” are the root cause of the yen’s depreciation.
However, a reading of the “Comprehensive Policy” reveals a declaration to expand fiscal spending and maintain an economy driven by high inflationary pressure; thus, the yen’s depreciation cannot be halted by a mere slight rise in interest rates.
Given the administration’s tendency to underestimate the yen’s weakness, the Ministry of Finance cannot intervene easily.

Since the government has set a nominal GDP target of 1,100 trillion yen, currency intervention would hinder the achievement of that goal.
I suspect Finance Vice Minister Mimura will refrain from intervention for the time being.
Intervention may not occur until the rate reaches around 165 yen.

Sooner or later, JGB yields will likely exceed 3%.
The “Sanae Shock”—Japan’s version of the Truss Shock—might be closer than we think.

Last Friday, Finance Minister Katayama stated, “We will respond appropriately at any time as necessary,” suggesting the possibility of currency intervention.
Even so, the dollar-yen rate shows almost no sign of easing. The fact that it isn’t easing suggests that, rather than the market aggressively going long, there are many people struggling with short positions.

Japanese retail investors are heavily short on USD/JPY, so any intervention now would likely just be used as an opportunity to take profits.
For that reason, the Ministry of Finance probably won’t move to intervene until Japanese retail investors’ USD/JPY short positions have been unwound to some extent.
Could the USD/JPY rise even further as retail investors struggling with their short positions cover their positions?