MUFG Says Yen Stays Weak With Bank of Japan Failing to Provide Reason to Buy

07:13 AM EST, 01/14/2026 (MT Newswires) -- USD/JPY hit an intra-day high of 159.45 earlier Wednesday -- the last time this level was hit was also an intra-day high back on July 12, 2024, the last day that Japan's ministry of finance (MoF) intervened to buy yen (JPY), said MUFG.

The MoF had intervened on July 11 -- intra-day high 161.76 -- and again on July 12, totaling 5.53 trillion yen, which was enough to see the yen commence a move of sustained yen recovery that extended to an intra-day low of 141.70 on Aug. 5, wrote the bank in a note.

USD/JPY then briefly broke below the 140 level in September before reversing course and recouping nearly all of that strength by year-end. Intervention had helped prompt a notable drop in USD/JPY -- other factors helped of course, like the Bank of Japan (BoJ) rate hike at the end of July and markets becoming more convinced on Fed rate cuts, which materialized in September 2024 -- but it failed to stick and the move retraced sharply.

That example highlights the challenge the MoF will have on this occasion to have any success in strengthening the yen, stated MUFG. This is especially so when there is the added political uncertainty under a new prime minister who more market participants believe may, in fact, privately welcome the yen remaining weak as part of a broader 'reflationist' economic policy stance.

Investors are rightly asking whether 'fiscal dominance' is now becoming a bigger feature of Japan's economic policy framework, pointed out the bank. This is when economic policy is geared toward managing debt servicing costs and overall debt at the expense of inflation remaining higher. As nominal gross domestic product growth accelerates, it helps drive down debt-to-GDP. The five-year average growth rate of nominal GDP in Japan is now 3.5% -- the strongest growth rate since 1995.

That perception is being reinforced by the impression that the BoJ is onboard with such an economic policy strategy, added MUFG. Governor Kazuo Ueda spoke earlier Wednesday at an event hosted by the Regional Banks Association of Japan and merely repeated the usual guidance that the BoJ will "keep raising interest rates and adjust the degree of monetary easing" in line with improving economic conditions if the BoJ's outlook materializes.

With the BoJ seemingly indifferent to a weakening yen despite inflation at 3% and policy rates still deeply negative, the scope for successful intervention is minimal, according to the bank. A stronger mandate for Prime Minister Sunae Takaichi in an election -- Feb. 8 is now cited as most likely -- only reinforces the prospects of the current policy mix being maintained for longer.

MUFG suspects yen downside momentum will continue despite the building risk of intervention, given the challenge of any intervention proving successful.

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