FAXING, Eurizon bet on the yen's decisive counterattack: intervention risks emerge, sharp rise correction may be imminent.

Eurizon SLJ Capital and France's Industrial Bank released a statement pointing out that the yen has recently continued to decline, increasing the possibility of government intervention in the market and signaling a potential sharp correction in the exchange rate. Earlier, there were reports that Japanese Prime Minister Takaichi Sanae might dissolve the Lower House for an early election, triggering a sell-off of the yen. The exchange rate briefly fell to around 159 yen to the US dollar, reaching its lowest level since July 2024. Investors believe that this move will solidify the ruling party, the Liberal Democratic Party, and clear obstacles for further fiscal stimulus policies - all of which are seen as negative factors for the yen and Japanese government bonds. Stephen Jen, CEO of Eurizon, stated in a report that the risk of the US dollar against the yen this year is "clearly biased downward," and "if officials intervene at the right time, it could trigger a correction in the exchange rate." Kit Juckes, Chief FX Strategist at Industrial Bank France, also holds the same view, pointing out that if there is a sharp rise in the yen exchange rate in the coming days, it "could be an excellent opportunity to short the US dollar against the yen." Some market experts consider 160 yen to the US dollar as a potential intervention threshold, but Japanese officials have repeatedly emphasized that they focus on excessive volatility and speed of fluctuations in the exchange rate, rather than specific levels. There is currently no unified standard for determining "exchange rate anomalies," but a high-ranking Japanese official stated in 2024 that fluctuations of 10 yen to the US dollar within a month or fluctuations exceeding 4% within two weeks are considered abnormal deviations from the fundamentals. The main entity for intervention in the yen exchange rate is the Bank of Japan, which carries out intervention measures on behalf of the Ministry of Finance. In 2024, when the yen exchange rate fell to 160.17 yen to the US dollar, officials initiated intervention. Ivan Stamenovic, G10 Currency Trading Director for Bank of America in the Asia-Pacific region, stated: "The current market is positioning heavily through various options products to interpret price movements before any drastic official response." Since Takaichi Sanae took office as prime minister last October, there has been widespread speculation that this prime minister, who has always supported reflation policies, may hinder the Bank of Japan from raising interest rates in the short term - which also became an important reason for suppressing the yen exchange rate. However, Juckes of Industrial Bank France proposed in the report that although Takaichi Sanae's cabinet holds a majority in the more powerful Lower House, due to considerations of debt sustainability, "the government is unlikely to implement aggressive fiscal expansion policies in the short term." He believes that this assessment will support the "buy on dips" strategy for Japanese government bonds and the yen. Position data also shows that there is a risk of short squeezing in the yen. In mid-2024, speculators' net short positions on the yen surged, pushing the US dollar against the yen exchange rate to surpass 160, and then the exchange rate rapidly reversed. The latest data from the US Commodity Futures Trading Commission shows that although short positions have recently fallen, they are still at high levels. At the same time, Citibank's yen misery index - an index tracking overall trader sentiment - remains in negative territory, highlighting the crowdedness of short yen trades at present.