Group 1 - The Japanese yen is experiencing its worst week in a year, with a nearly 4% decline this week, trading around 153 against the US dollar, the lowest level since mid-February [1][3] - The sharp decline in the yen is primarily due to market concerns over the potential election of a dovish figure, Sanae Takaichi, as Japan's first female Prime Minister, which may reduce the likelihood of further interest rate hikes by the Bank of Japan [3][4] - Market sentiment regarding Japan's monetary policy has turned pessimistic, with traders adjusting their expectations significantly, now estimating a 45% chance of a rate hike in December [4] Group 2 - Investors believe that Takaichi's fiscal policy stance may pose political resistance to future interest rate increases by the Bank of Japan, leading to a shift in market expectations [4] - The market has fully priced in a 25 basis point rate hike in March next year, indicating that hopes for tightening monetary policy in the short term have been pushed further into the future [4] - Expectations for intervention in the foreign exchange market by Japanese authorities are also diminishing, as recent comments from Finance Minister Shunichi Suzuki suggest that immediate intervention is unlikely, potentially encouraging further selling of the yen [4]

Core Viewpoint - The Japanese yen is under pressure due to expectations of continued monetary easing by the new government and uncertainty surrounding the Bank of Japan's (BOJ) policy direction, particularly regarding interest rate hikes [1][2] Group 1: Currency Market Dynamics - The USD/JPY exchange rate is trading around 152.50, with a weekly increase exceeding 3%, marking the largest rise since September 2024 [1] - Market participants are questioning the likelihood of the BOJ raising interest rates in October or December, given the ongoing weakness in Japan's economy [1][2] - The Federal Reserve's September meeting minutes indicate a cautious approach towards potential rate cuts, with inflation risks still a concern [1] Group 2: Economic Outlook and Policy Expectations - The probability of a BOJ rate hike in late October has dropped to 27%, while December's likelihood stands at 44%, subject to changes with the new government [2] - BOJ officials express a mix of optimism and caution regarding the economic outlook, particularly concerning wage-related uncertainties [2] - Former BOJ officials suggest that the rationale for a rate hike this year is weak, advocating for a careful approach to policy normalization [2] Group 3: Potential Risks and Interventions - If the BOJ does not raise rates in October, the risk of foreign exchange intervention may increase, although decisive action is unlikely from the current government [2]

Core Points - The U.S. Treasury and Japan's Finance Ministry reaffirmed their commitment to G7 principles, emphasizing that exchange rates should be determined by the market and avoiding artificial intervention [1] - They committed to publicly disclosing any foreign exchange intervention operations at least once a month [1]

Group 1 - The Indian Rupee is under pressure due to increased tariffs imposed by President Trump, leading to a near-historic low against the US dollar [2][5] - The Reserve Bank of India (RBI) has intervened in both onshore and offshore foreign exchange markets, selling at least $5 billion to support the Rupee [2] - The Rupee has depreciated over 2% this year, making it one of the worst-performing currencies in Asia, with about half of this decline occurring in the past two weeks [2] Group 2 - The RBI's recent intervention indicates a shift from its previously restrained strategy under the leadership of Chairman Sanjay Malhotra [2] - The RBI has utilized non-deliverable forward (NDF) instruments to guide the Rupee's movement without immediate large-scale dollar sales [5] - As of August 1, the RBI's foreign exchange reserves decreased by $9.3 billion to $689 billion, marking the largest decline since November [5]

Core Viewpoint - HSBC's multiverse model suggests that the reasonable valuation for USD/JPY is between 146 and 152, but warns that various political, macroeconomic, and policy changes could trigger a rebound in the yen [1] Group 1: Factors Influencing Yen Rebound - Key factors for potential yen appreciation include a US-Japan trade agreement, the Federal Reserve restarting easing policies, or direct intervention in the foreign exchange market by Japan [1] - A US-Japan trade agreement with lower-than-expected tariffs could alleviate fiscal concerns and reignite expectations for Bank of Japan rate hikes, providing upward potential for the yen [1] - The anticipated Federal Reserve rate cut in September also poses an upside risk for the yen [1] Group 2: Intervention Thresholds - If the USD/JPY exchange rate falls between 155 and 160, it may trigger foreign exchange intervention by the Japanese Ministry of Finance [1] - Due to US scrutiny over currency manipulation, the threshold for such intervention may have been lowered [1]

Core Viewpoint - The Governor of Bank Indonesia, Warjiyo, stated that the central bank will continue to implement foreign exchange interventions in the offshore market next year to manage the exchange rate of the Indonesian Rupiah [1] Group 1 - The central bank's strategy aims to stabilize the Indonesian Rupiah amid market fluctuations [1] - Continued foreign exchange interventions are expected to support the currency's value against external pressures [1]

Core Viewpoint - The Danish central bank did not conduct any foreign exchange interventions last month [1] Group 1 - The absence of foreign exchange interventions indicates a stable currency environment in Denmark [1]

Core Viewpoint - The Bank of Korea has engaged in net selling of $2.96 billion in the first quarter to curb the depreciation of the Korean won, following a net selling of $3.76 billion in the previous quarter [1] Group 1 - The net selling in the first quarter was $2.96 billion [1] - The previous quarter's net selling was $3.76 billion [1] - The actions taken by the Bank of Korea are aimed at stabilizing the currency [1]

Core Viewpoint - The Swiss National Bank (SNB) Governor stated that foreign exchange interventions are primarily focused on the most liquid markets, specifically the US dollar and euro markets [1] Group 1 - The SNB emphasizes the importance of liquidity in foreign exchange interventions [1] - The US dollar and euro are identified as the main currencies for intervention activities [1]

Core Viewpoint - The monetary policy authority in Taiwan has received recommendations from the United States to conduct foreign exchange interventions in a limited manner, allowing the exchange rate movements to reflect the economic fundamentals [1] Group 1 - The U.S. suggests that Taiwan's foreign exchange interventions should be restrained [1] - The emphasis is on allowing the exchange rate to mirror the underlying economic conditions [1]