Research Team at ING, suggests that despite verbal intervention from the MoF last week, the bar for unilateral FX intervention remains high.
"But if the recent surge in JPY continues, the BoJ may find itself in a difficult position at its next meeting at the end of April.
JPY surges higher, pressure for FX intervention builds. Verbal intervention from the MoF has quickly progressed this week, with officials moving from "monitoring closely" to citing JPY moves as being "one-sided". Historically, language such as "speculative" or "not reflecting fundamentals" has been the next and final steps before FX intervention.
Yet, the bar for unilateral intervention by Japanese officials remains high. For one thing, PM Abe will be wary of breaking the G20 pledge against competitive devaluations ahead of May's meeting – where he looks set to push for coordinated action to promote global growth. Besides, unilateral FX interventi on has historically been ineffective, with the impact typically short-lived. Only the Mar 2011 intervention following the tsunami crisis in Japan had any enduring effect on the yen; this was almost certainly due to the fact that the move was coordinated with other G7 central banks. With the JPY REER still 30% below its long-term average (ie, strongly undervalued), officials outside of Japan are unlikely to see any real justification for coordinated intervention.
Given that FX intervention is unlikely for now, the pressure has increased on the BoJ to deliver some form of stimulus at the 28 April meeting. The economic case for easing is clear, so the two main questions are (a) what options do the BoJ have and (b) can these measures reverse or even stem the JPY's current upward trend.
Overall, the BoJ may well find itself between a rock and a hard place should JPY strength persist ahead of the 28 April meeting. With intervention unlikely this side of 105, the BoJ's bigg est challenge will be to deliver a stimulus package that does more good than harm. Getting it wrong could prove costly in terms of fuelling JPY upside."
Source → Japan: Time for Intervents-Yen? � ING