Another intervention wouldn’t reverse yen weakness

With the yen currently trading just below 149, it now appears to be a question of when and not if policymakers step in again. But as recent weeks and the Asian Financial Crisis have shown, such interventions alone can’t reverse yen weakness. An even weaker yen would push up import prices, but with energy inflation set to fall sharply from early-2023, headline inflation probably won’t rise much above the 3.0% seen in August. Meanwhile, corporate profits would be augmented further and increase corporate Japan’s capacity to grant larger wage hikes, which could sustain the unusually strong growth in regular wages in August. Admittedly, sustained inflation above the Bank of Japan’s 2% target as well as accelerating wage growth would build a case for the Bank to tighten policy. But we don’t think the BoJ will tighten policy in response, not least because the global economy will be in recession next year.