It’s not far more likely than it has been in a long time that the Japanese government will intervene in the currency markets.
The yen is soaring and Morgan Stanley’s proprietary reading shows an extreme reading:
Morgan Stanley’s Stephen Hull:
However, as Exhibit 12 on the next page shows, the yen is now very strong on a trade- weighted basis and the authorities will be keen to avoid further yen strength given the fragile recovery that is taking place in Japan and the risks of deflation. Our JPY intervention model shows the risk of intervention is rising. It currently shows that the probability is at 46% the highest reading since end 2004, which is a higher reading than when they’ve actually intervened in the past!
(Via Morgan Stanley, How’s the year going?, Stephen Hull, 1 July 2010)