Despite the joint intervention move by Japan and the US, it doesn’t seem to be sticking all too much. USD/JPY is already on its way back up in pushing above 159 this week, though I would argue that traders will remain a bit more cautious in chasing a move above 160 for now.
While the combined effort between Japan and the US is significant, MUFG is one to argue that it’s not likely to perpetuate – at least in terms of market signaling. The firm believes that traders are still looking to sell the yen where possible at this juncture.
“After such a large FX drop in USD/JPY, market participants’ appetite for buying the yen could remain muted for now. Certain elements of the market, like retail FX margin traders, were short USD/JPY and could be playing a role in providing renewed yen selling flows. Those short USD/JPY positions have probably been liquidated but returning to a carry strategy (rather than directional) may be deemed as more attractive once again at these lower levels, encouraging renewed USD/JPY buying.”
In my view, it’s more of a give and take at the moment. As a reminder, it’s all a psychological game when it comes to USD/JPY – as it has been since April.
The joint intervention is a clear enough signal for traders not to get too carried away in the short-term. However, it doesn’t change the fact that the fundamentals for the yen currency remain absolutely dreadful. And it won’t get any better the longer that the US-Iran conflict continues to rage on.
Sitting on the joint intervention topic, Nomura chimes in to say that the amount spent by the MOF this time around likely exceeded that back in late April to early May.
“We yet don’t know the amount of intervention from both sides, but we estimate the Japanese authorities provided approximately ¥14.1 trillion in intervention or $88 billion from 30 July to 3 August, using the BOJ’s daily data and local money market dealers’ projections. This exceeds the amount of MOF intervention on 30 April, 4 May and 6 May, which was officially confirmed by the MOF as ¥11.7349 trillion. On these interventions in April-May, we found this daily intervention result somewhat surprising, as it did intervene on 4 May, as we believed that intervention did not occur on this day, based on price action on that day.”
Adding that US intervention amount remains unclear for now but there was perhaps a different message indicated by Washington in the manner that they chose to step into the market:
“Reports from the FT and Nikkei strongly suggest the US likely conducted short EUR/JPY intervention. The US likely chose this pair to curb JPY weakness, as it did not want to convey a message to the market that could be inconsistent with its strong USD policy.”
This article was written by Justin Low at investinglive.com.