USD/JPY fell to 157.00 from 157.75 after fresh undervaluation talk from a variety of officials.
This is the second round of jawboning today. Earlier, Katayama took the unusual step of disclosing that Trump raised the weak yen with Takaichi at their UN meeting this week, and that Takaichi told him, “as a general principle,” that an undervalued yen is a problem. That got about 30 pips. Now Katayama says she and Bessent “reaffirmed the point that the undervaluation of the yen is a problem” and that she expects the “excessive” yen selling to be corrected. She even suggested the market “misunderstood” something.
The language isn’t new. “Substantial undervaluation” has been Treasury’s phrase since the July 31 joint intervention, when USD/JPY was near 164. What’s notable is the escalation in who is saying it. It now reaches from the finance ministers up to the leaders, and Tokyo chose to make a private summit exchange public and it looks coordinated.
The other part is the setup. The joint intervention took the pair from 163.73 to the mid-150s. Two months later, the market has taken back a good chunk of that because the rate gap still pays you to be short yen. Officials are trying to stop the slide before it becomes a retest of the highs. With reports of rate checks and both governments on record, it’s a game of chicken right now. The US has already shown it will put its own balance sheet on the other side of the trade but is it enough to make a dent?
The problem is that the BOJ has already done what Washington asked. It hiked to 1.25% last week, a faster pace than before, with Bessent openly pushing for it, and USD/JPY barely noticed. That’s why the leaders are now being wheeled out. Intervention and jawboning buy time, but with the rate gap still wide, a sustained move below 155 likely needs the BOJ to signal the next hike is coming sooner than the market expects.
USD/JPY 10 mins:
This article was written by Adam Button at investinglive.com.