Intervention risk increases – MUFG

The USD/JPY hit levels not seen since 2002 and then pulled back only modestly. Analysts at MUFG Bank point out that the USD/JPY move higher may slow down on an increased risk of intervention to curb yen’s weakness. They see short-term risks in USD/JPY to the upside.

Key Quotes:

“USD/JPY has corrected lower in part in reaction to a meeting today in Tokyo attended by MOF Vice Finance Minister Masato Kanda and the FSA Commissioner and two BoJ Executive Directors. The meeting was convened to discuss international financial markets and the statement that followed from that meeting clearly illustrated the heightened level of concern over the scale of yen depreciation. The statement referenced in particular the view in Tokyo that “current excessive moves aren’t aligned with fundamentals”. The statement also included that Tokyo officials “were watching FX with greater urgency”. Kanda-san’s position traditionally has the responsibility on FX policy and the meeting and Kanada-san’s attendance and comments certainly have elevated the risks of FX intervention to stem the depreciation of the yen.”

“The risks over the short-term is for USD/JPY to drift further higher. The CPI data and the Fed meeting next week will provide support for US yields, underlining the lack of change to the policy diversion driver, especially given Governor Kuroda’s speech this week. The threat of intervention is certainly now much higher following the statement today expressing concern, which may result in increased reluctance for speculative yen selling and result in non-dollar yen strength in circumstances of broader US dollar strength into the FOMC and BoJ meetings next week. ”

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