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Japan continues to highlight unease over one sided yen moves - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 12, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Lee Hardman, Currency Analyst at MUFG, notes that the yen has weakened modestly in the Asian trading session undermined in part by further verbal intervention from Japanese officials and an improvement in global investor risk sentiment.

    Key Quotes

    “More stable financial market conditions in the near-term remain supportive for high yielding currencies encouraging carry demand. Commodity currencies are also being supported by the rebound in the price of crude oil ahead of the upcoming meeting on Sunday of major oil producers in Qatar.

    The yen has been undermined overnight as well by stronger verbal intervention from Japanese Finance Minister Aso who stated that Japan will take “proper action” if there are extreme one-sided FX moves. He noted that the G20 agreed in Shanghai that extreme FX moves are bad for economies. It echoes comments over the weekend from Chief Cabinet Secretary Suga which together are intended to make market participants more nervous about the risk of direct intervention in the near-term.

    The step up in verbal intervention appears to be having some effect at least initially by dampening the pace of yen gains. The yen has strengthened for seven consecutive trading days against the US dollar highlighting the one sided nature of the price action. It is the longest number of consecutive days that the yen has strengthened against the US dollar since October 2011 which occurred just before Japan last intervened to weaken the yen. However on that occasion the yen was also significantly overvalued as USD/JPY was trading closer to the 75.00-level.

    Comments yesterday from US Treasury Secretary Lew calling for the IMF to play a more aggressive role in policing exchange rate fluctuations, global imbalances, and the failures of members to live up to commitments to boost global demand highlight that Japan are likely to face international opposition to intervention. He explicitly stated that FX intervention for competitive advantage in unacceptable. Overall, we continue to believe that Japan is unlikely to directly intervene to dampen the yen’s advance unless it strengthens more rapidly in a disorderly fashion.”
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