Japan must take bold action or risk further significant weakness in the yen – JP Morgan
JP Morgan argues that at current levels, Japan's ministry of finance has to take firm action in order to shoot down speculators or risk another wave of weakness in the yen currency. The firm notes that:
"End of last week saw an acceleration through 161 and all of a sudden we are knocking on the door of 162 - somewhere USD/JPY has not been for 40 years. Spicy price action Thursday night bears the hallmark of a rate check but as with the prior suspected episode (clearing of 160 over NFP earlier this month) the rate of recovery has been pretty aggressive.
We are nearing an inflection point here and the MOF must know anything except bold action will risk a significant acceleration in JPY weakness, we keep hearing from Katayama but it is really Mimura we need to hear from. Not positioned here but would be very surprised if they let this go; they will feel that the energy complex is on their side and they will also be aware that JPY shorts have built to relatively decent level now."
The currency pair is keeping at 161.75 currently and is continuing to poke and prod at the 2024 highs near 161.95 for now.
At the same time, Credit Agricole outlines below the scope in which Japan might intervene:
"According to MOF data released last week, the MOF still has $1.3 trillion in FX reserves it can use to intervene in FX markets. It could therefore intervene on the scale it did in April-May by over 15 more times. The same FX reserve data released last week, however, also suggest Japan likely sold USTS to finance its record $73 billion of FX intervention in the April-May period. US Treasury Secretary Scott Bessent has said in the past that he would prefer Japan support the JPY via higher rates rather than FX intervention. The US government is becoming increasingly sensitive about the higher UST yields. So, investors could be thinking US-Japan politics could limit the MOF's ability to intervene."
As a reminder, this giant war chest that Japan has is not exactly "unlimited" in the sense that all the $1.3 trillion is in cold hard cash. As mentioned before:
"They have a whopping $1.2 trillion to work with. However, it is important to note that not all of this is in liquid cash deposits. In fact, over 80% of that are in securities which primarily consist of US Treasuries among other foreign government bonds.
So, it is not to say that they have an "unlimited" tap to keep drinking from if they burn out their cash reserves. If that were to be the case, it's a tricky situation for the ministry of finance. If it were to come to that, selling Treasuries may have the unintended effect of pushing US yields higher and that is an indirect tailwind for the dollar instead. So, that sort of achieves the opposite effect of what Tokyo wants; that is for a lower USD/JPY.
Of course, it's not as simple as that. However, all of this is part and parcel to the equation and it all adds up to how markets react at the end of the day. As such, that is something I reckon Tokyo officials will want to avoid for as long as they can."
This article was written by Justin Low at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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