The sudden strengthening of the yen after it breached 150 against the dollar earlier this week has triggered speculation that the Ministry of Finance sold foreign exchange reserves to support the yen for the first time in a year. But with long-term interest rate differentials rising to a two-decade high, any attempts to strengthen the yen via FX interventions will be an uphill battle. Meanwhile, the upbeat Tankan and strong growth in regular pay suggest that the virtuous cycle between wages and prices that the Bank of Japan has been looking for has finally been set in motion.
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