Yen traders see more official warnings and border opening measures

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(Bloomberg) – Japanese forex traders waited to see if a modest yen rally would hold on Monday, amid general dollar weakness, continued verbal interventions and media reports that border restrictions could be eased .

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The yen fluctuated between gains and losses in early trading on Monday after closing more than 1% higher on Friday and recovering about half of last week’s rapid decline.

Deputy Chief Cabinet Secretary Seiji Kihara said on a TV show on Sunday that Japan should “take necessary measures while closely monitoring developments, including excessive and unilateral movements in the exchange rate.” His comments came after officials issued their strongest warning yet on the yen’s decline, with Bank of Japan Governor Haruhiko Kuroda joining the chorus on Friday.

While real market intervention to buy the yen is still seen as an unlikely option, analysts have pointed to other measures Japan can use to help support the currency, including opening borders.

Japan plans to remove the 50,000-person-per-day cap on overseas arrivals by October and will also consider removing other barriers to inbound tourism, the Nikkei reported Sunday. Kihara said on television that the government would further relax its rules on tourism at the “appropriate time” because Japan “must not fall behind” the rest of the world.

Still, the bearish sentiment towards the yen remains intact given monetary policy and the divergence in yields between Japan and the United States. Asset managers’ net short positions in the yen hit a record high last week, while leveraged funds increased theirs the most since March, according to the latest data from the Commodity Futures Trading Commission.

“We remain comfortable with our bearish view of the yen even after the latest move,” Goldman Sachs Group Inc. strategists, including Kamakshya Trivedi, wrote in a note Friday. “But we think the debate around the risks of intervention and a possible change in monetary policy will become increasingly important as we reach higher levels,” in dollar-yen terms.

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