Knock, knock. Who’s there? Japan’s intervention warning, of course. With USD/JPY flirting with the 160.00 level again this week, Tokyo is making sure that traders know that someone is watching.
Japan’s prime minister Takaich is the latest to chime in with some comments, saying that:
- Does not want to comment on exchange rate levels
- In close contact with US financial authorities on the exchange rate
- Will work to maintain an orderly FX market
- Exchange rates are determined by various factors
- Economic and fiscal policies are not aimed at manipulating exchange rates
- Will manage economic and fiscal policies while closely monitoring market developments
It’s all fairly familiar language but as always, it is more about the timing of the commentary.
USD/JPY briefly poked above the 160.00 mark in trading yesterday and is hovering just below the figure level again today. So, that puts traders back in dangerously familiar territory – especially after Japan’s intervention play over the summer.
If you need a reminder, Tokyo had already shown proof that Washington is willing to lend a helping hand. So, that makes Takaichi’s reference to close US coordination more than just diplomatic pleasantries.
In any case, just be wary that crossing the 160.00 level isn’t some magical line that automatically triggers intervention. As mentioned before, Japanese authorities care more so about the speed and disorderliness of currency moves, not merely the exchange rate itself.
That being said, USD/JPY sellers definitely have their work cut out for them. The dollar’s resurgence this week is something noteworthy, being driven by rising US yields and more hawkish Fed expectations. As such, verbal warnings alone won’t be something that can easily undo that interest rate advantage.
As such, that brings us back to a familiar game of who blinks first. Dollar bulls certainly have the momentum on the week but Tokyo has already shown its willingness to act this year. But as USD/JPY continues to test the limits near or just above the 160.00 mark, something’s gotta give eventually.
This article was written by Justin Low at investinglive.com.