Japan's top currency official Atsushi Mimura signaled the government is prepared to intervene in foreign exchange markets to counter yen weakness. The yen jumped more than 2% on Thursday and held most of those gains into Friday, reaching its strongest level against the dollar in a month. The move was amplified by carry trade unwinding as traders raised their bets on additional Bank of Japan rate hikes.
A strengthening yen pressures Japanese exporters whose overseas earnings shrink when converted back to a stronger home currency, making stocks like Toyota and Sony less attractive to foreign investors. Carry trade unwinding is the bigger short-term threat: when traders who borrowed cheaply in yen to buy higher-yielding assets unwind those positions, they sell those assets fast, which can drag down US equities, emerging market bonds, and crypto simultaneously. If the BOJ follows through with rate hikes, the unwinding has further to run.
Next Bank of Japan policy meeting: July 30-31. US CPI release: July 11. Japan intervention history suggests follow-through action within days if the yen reverses sharply.
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