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USD/JPY intervention unlikely before 130


A (hunk) excerpt from ING and their thoughts on intervention to stem the fall of the yen.

  • One of the first, and perhaps the only, objectives of FX intervention is that it must succeed. Not that we’ve seen a lot of FX intervention in the G3 FX space over the past decade, but successful intervention in liquid FX pairs should be coordinated. Involving the Fed in a sell dollar operation when the Fed is about to raise rates by 300bp is highly unlikely. If an intervention were to take place, it would probably be Japan alone.
  • But as our chart above shows, which was more common in the 1990s and until about 2003, Japanese foreign exchange intervention over the past two decades has been the rare exception rather than the rule. As a member of the G20 and the tighter G7 group, Japan has had to adhere to flexible exchange rates – as a way to bring China into line with a less managed currency.

  • To justify a proprietary FX intervention to sell USD/JPY, the Japanese authorities would have had to make a strong statement that the weak yen was not just a Japanese problem but a global problem. In fact, it seems hard to argue that a weak JPY is even a problem for Japan. It certainly doesn’t look like the “sell Japan” mentality is developing – Japanese equities haven’t underperformed. And if the Japanese fear that soaring energy prices will be exacerbated by the weak yen, they can either raise interest rates or adopt fiscal support measures (a shield against inflation) rather than to intervene.

IBG continues with this, this is what I mention over and over again that elicits the mind-boggling comments we pass on to the Japanese authorities:

  • The only case we see of the Japanese Ministry of Finance ordering the BoJ to sell USD/JPY is the case of a disorderly currency movement. What is messy? This will depend on the speed of the move and the market conditions. In the past, Japanese policymakers have looked to the currency options market to judge market conditions. Previous interventions in the FX market for disorderly moves came as USD/JPY month-to-month volatility was closer to 18/20%. The recent move to 125 saw trading volatility increase to 11%. We suspect USD/JPY would need to trade at or above 130 for volatility to be near 18/20% again.

USD/JPY has seen a rapid rise over the past few weeks, which has triggered the verbal “interventions”, but that’s it for now:


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