SocGen: USD/JPY likely to test Finance Ministry’s willingness to intervene on a large scale
Daily USDJPY
Société Générale is evaluating the possibility of USD/JPY testing the Japanese Finance Ministry’s intervention limits due to continued US rate expectations and recent market dynamics. The bank emphasizes that upcoming US economic data will be crucial for future currency movements.
Key points:
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Yield curve dynamics in the United States: The correlation between Fed funds futures and 10-year yields is particularly high, reflecting a flat yield curve. This correlation significantly influences the USD/JPY exchange rate, with current US rate expectations supporting continued weakening of the yen.
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Potential for intervention on the yen: Given the strong correlation and current trends in US rate expectations, SocGen suggests that USD/JPY may soon test the Treasury’s willingness to meaningfully intervene in the foreign exchange market to support the yen.
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Impact of US economic data: The recent market reaction to US PMI data indicates that long positions in the dollar and short positions in Treasuries may become excessive. This sets the stage for next week’s US ISM and payrolls data, which should be crucial in determining the near-term directions of USD/JPY.
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The BoJ meets expectations: Even if the next meeting of the Bank of Japan (BoJ) is not expected to bring significant surprises, it remains a variable likely to influence the dynamics of the yen. Any unexpected changes or statements from the BoJ could impact market expectations and potentially affect USD/JPY trends.
Conclusion:
SocGen highlights the importance of upcoming US economic indicators in shaping market expectations and influencing USD/JPY movements… Additionally, the potential for large-scale intervention by the Japanese Ministry of Finance adds a layer of uncertainty and importance of monitoring these developments.
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