Japan-US joint intervention a turning point for the yen?
The latest joint action from the US and Japan has definitely brought back the buzz to the major currencies space. We all knew Japan intervention was on the cards and it was proven to be the case on Thursday last week. And the market response was as you would expect, before Japan called for additional help just in case traders defied their solo venture.
MUFG is one that believes that the latest incident could mark a turning point for the yen currency. That as they see quicker BOJ rate hikes as a potential tailwind to bolster support for the yen despite the more challenging fiscal and economic woes.
They point out that the US may have agreed to an arrangement with Japan whereby the BOJ will continue to normalise monetary policy as part of the decision to participate in joint intervention on the currency. Of course, that is speculative at best but they allude to Mimura’s comment in saying “I have a shared understanding with the BOJ” after the coordinated move.
In that lieu, the firm argues that:
“Overall, the latest development give us more confidence in our forecasts that the yen is in the process of bottoming out. The threat of further joint intervention and a faster pace of BOJ hikes should provide more support for the yen, and discourage speculators from running elevated short yen positions.”
BofA is also one to acknowledge that the joint intervention is a big change to the USD/JPY landscape. However, they view the 155 mark as being the key threshold in defining what comes next for the currency pair despite the latest efforts to try and underpin the yen currency.
“We believe a break below 155 could trigger a meaningful shift in market dynamics. If 155 holds, market participants are likely to continue viewing it as a floor and may re-establish short-yen positions. Conversely, a sustained move below 155 could trigger stop-loss selling in USD/JPY.
In addition, the latest BOJ Tankan survey showed that Japanese corporates are assuming USD/JPY levels in the 152s for the current fiscal year. It is reasonable to infer that 150 and 155 are among the most widely used planning assumptions. Given the strengthening consensus for yen weakness this year, hedge ratios may have declined. A break below 155 could therefore encourage corporate hedgers to shift toward selling USD/JPY on rallies rather than sitting on USD/JPY carry.”
