USD/JPY is at the highs of the day, up 25 pips to 159.55 as the intervention recovery continues. More importantly, the pair has edged above the post-intervention high of 159.57 as it continues to test both Japan’s ministry of finance and the US treasury.
What scares me about this pair at the moment is that I don’t know what the strategy of either the MoF or Treasury is. Yes, they both want the pair lower but how much? How far are they willing to go?
Japan doesn’t have limited reserves and may be threatening to sell Treasuries. The US, in turn, is using euro reserves to buy yen in a move that’s also not unlimited and threatens a rift with Europe. It’s also not clear why the flows are so strong that have driven USD/JPY higher. Is it simply a carry trade or is there something happening in the AI financing trade that’s causing some one-time flows that are artificially holding down the yen.
Technically, the line in the sand will be 160 in the short term and if that breaks, we could see accelerated gains once again. Until then, I’d expect the market to continue tip-toeing in that direction.
This article was written by Adam Button at investinglive.com.