Japanese Authorities May Intervene if U.S.-Japan Volatility Approaches 150
Market analysts are predicting that Japanese authorities could intervene if the volatility between the U.S. and Japan approaches the 150 mark. Experts have noted that the yen has stabilized against major currencies but remains at landmark lows.
James Skinner, a market analyst, stated that if the recently popular “carry trade” results in the yen’s fall again, Tokyo JPY/EUR and JPY/GBP are likely to benefit from intervention to support the yen. Brad Bechtel, the global head of foreign exchange at Jefferies, also commented that yen intervention would weigh on the carry trade market and lead to significant losses in EURJPY and GBPJPY.
While central banks in Europe – particularly the European Central Bank (ECB) and the Bank of England (BoE) – struggle to keep up with inflation, Bechtel suggests that the EUR/USD and GBP/USD may continue trading lower. The yen has traditionally been a popular funding currency for investors looking for low-cost investments in high-yielding assets.
Adarsh Sinha, head of Asia-Pacific FX strategy at BofA Global Research, explained that Japanese government officials have recently intensified their rhetoric against yen depreciation. He added that if the volatility approaches 150, foreign exchange intervention may become necessary.
Japan’s borrowing costs have remained relatively stable due to the Bank of Japan’s continuous monetary easing efforts. The bank has expressed doubts about the sustainability of inflation in Japan but has not ruled out further adjustments to government bond yields.
The Bank of Japan’s policies have made the yen an appealing “funding currency” while the ECB and BoE’s policies have made the euro and pound attractive as potential carry trade counterparties. This has further exacerbated the yen’s value against other currencies, leading to its depreciation over the past three years.
The finance ministry of Japan has already voiced concerns since the mid-year decline in June. Some officials have echoed interventions made last year before the dollar’s rally pushed it to multi-decade highs against the yen.
Spectra Markets CEO, Brent Donnelly, pointed out that shorting USDJPY has become increasingly expensive, while long USDJPY positions have grown in popularity.
Currently, the USD/JPY pair stands at 144.64/65, according to the latest data available as of 13:20 Beijing time on July 5th.