The yen was flat at 149.54 per dollar, close to the sensitive 150-level. Some traders see an increased potential for Japanese authorities to intervene to support the yen if it weakens past that level. On Friday, Japan’s top currency diplomat Masato Kanda said authorities will take appropriate action against a backdrop of excessive moves in the yen when needed, adding interest rates are merely one factor in determining exchange rates. The yen is still perceived as a safe asset along with the Swiss franc and U.S. dollar, Kanda added. Carry trades funded by the yen could be the biggest casualty of further escalation in Israel’s war, analysts said, as global investors who have for months been shorting the yen to invest in higher-yielding currencies buy it back as a safe-haven.
“Obviously war is inflationary, disrupts growth and threatens risk assets,” said James Malcolm, head of FX strategy at UBS in London. “The largest overhang I can see in this regard is dollar-yen, where the BOJ must pivot regardless and the carry trade that has built up now amounts to nearly half a trillion dollars.”