USDJPY daily
Mitsubishi UFJ Financial Group highlights the growing likelihood of intervention by Japanese authorities to support the yen, following strong signals from the Japanese Finance Minister and recent monetary trends. USD/JPY is hovering just below the crucial 155 level, intensifying expectations for intervention ahead of the Bank of Japan policy meeting on Wednesday.
Key points:
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Warning from the Minister of Finance: Japanese Finance Minister Suzuki has issued a powerful warning that the government is poised to intervene in the foreign exchange market to prop up the yen. This follows a tripartite agreement between Japan, South Korea and the United States recognizing concerns over recent weakness in the yen and South Korean won.
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Market conditions and preparation for intervention: Suzuki’s statements suggest that conditions for intervention are ripe, marking a significant shift in Japan’s stance toward more direct action against excessive volatility in the yen exchange rate.
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Speculative trading and yen weakness: The latest IMM report reveals a continued increase in speculative short positions on the yen, reaching the highest levels since November 2017. This trend highlights the market’s bearish outlook on the yen, contributing to its depreciation.
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Concerns about economic fundamentals: Japanese officials are concerned that the yen’s recent movements do not reflect the country’s economic fundamentals, particularly since significant policy changes in March, when Japan abandoned negative interest rates and yield curve control.
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Timing and effectiveness of the intervention: There are concerns that intervening to support the yen will be less effective if U.S. yields continue to rise, which could further strengthen the dollar. This scenario could diminish the impact of Japanese efforts to stabilize or strengthen the yen.
Conclusion:
As USD/JPY approaches the sensitive level of 155, MUFG highlights the increased risk of Japanese intervention to support the yen. With support from recent agreements and the clearest indication yet from Japan’s Finance Minister, markets are on alert for potential actions that could significantly influence currency dynamics.
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