Both Bank of Japan Governor Kuroda, and Minister of Finance Suzuki, have been on the wires this morning with the usual watching FX closely, FX stability important rhetoric. It is the first time in many years they’ve had to resort to this playbook as USD/JPY surged above 122.00 overnight as the US/Japan rate differential widened.

The yen has been one of the largest casualties of a hawkish Federal Reserve, even as the rest of the currency space remains in fence-sitting denial. Part of this reason is that the BOJ has repeated numerous times in the past week that it has no intention of changing its multi-decade dovish stance. To be fair, although Japan’s inflation is edging towards 2.0%, core inflation remains benign as ever.

The comments have had a short-term effect, pushing USD/JPY 0.50% lower in Asia and nipping the Nikkei 225 rally in the bud, sending it into negative territory. Like almost all of Asia, officials in Japan are more worried about the impact the Ukraine war will have on growth, and ensuring food and energy supplies, than inflation. Japan also has the benefit of starting its inflation race from deeply negative territory. Tokyo CPI YoY for March, released today, rose to 0.80%. Hardly earth-shattering and quite frankly, inflation nirvana for many other central bankers in the world.

Nevertheless, jawboning markets has a declining marginal utility. The more you do it, the less impact it tends to have. The Ministry of Finance (MOF) and BOJ are probably more concerned about the pace of the yen decline, rather than the decline itself. Another set of Fed talking heads was hawkish overnight, and another investment bank pencilled in two 0.50% Fed funds hikes for May and June. Rates are going higher in the US (and elsewhere), and even the MOF and BOJ can’t order the tide to recede. China tried the same thing early last week with the stock market, But a week later, having declined to cut the 1 or 5-year LPRs on Monday, China stocks look set to record a modest weekly fall. So, the brave new dawn for China equities looks to be running on empty already.

To be clear, I do not believe the MOF will intervene and sell USD/JPY (the MOF orders the intervention, the BOJ executes it) Not here, not at 125, not at 130.00 or even 135.00. That would upset the United States for a start, and unilateral intervention tends to be short-term gain, ending in the same pain. Nor will they waste money fighting the Federal Reserve direction of monetary policy, although I don’t rule out tactical smoothing. The rest of Asia is likely to face the same pressure in the months ahead. Although I am bearish on Asia FX as a whole, I am not expecting a full-blown taper tantrum, thanks to Asia’s bulging foreign currency reserves.

It wouldn’t surprise me if the seemingly forgotten ‘carry trade” comes back into vogue this year, with yen the funding currency of choice if the BOJ persists with its present course. The US, Canada, Australia, New Zealand, Britain, Norway, Sweden may find all find their hiking efforts undermined as their central banks hike, making the yield differential place juicier, not least from Japanese retail investors who will find the stock market tough going this year.

Overnight, European and US PMI data was mostly positive, and US Initial Jobless Claims fell to a record low, while US Durable Goods data showed supply chain stress as it missed expectations. The biggest surprise was probably the strength in European Manufacturing PMIs from Germany and France for March. That seemed to be enough to take the edge of the negatively in European equities. That was March though, and as the Ukraine war grinds into a second month, it will be interesting to see if sentiment remains as robust in the April data.

Markets in New York seemed to take heart from the EU decision to not sanction Russian energy, or that was the excuse. The modest thinking required to conclude that they can’t sanction Russian energy, or that that news was out 18 hours earlier, passing by their buy-the-dip amoebic minds. More supportive were indications from the IEA that another coordinated reserves release could be in the way. This was enough to cap oil’s immense rally this week, although Brent and crude remain near recent highs.

The data calendar is quiet in Asia today, with just Singapore Industrial Production slated for release. The UK releases Retail Sales, and Germany releases its IFO Business Climate survey. Both have downside risk in the present situation and could cap sentiment in the euro and British pound, as well as equities. Similarly, US Pending Home Sales and Michigan Sentiment carry similar risks. I won’t guess whether that will deter the FOMO gnomes of the stock market, though.