USD/JPY holds lower to start the week as US enters the intervention fray
After the intervention play on Thursday last week, it seems like Tokyo officials were going to be dealt a setback on Friday as USD/JPY continued to test a push back above the 160 mark. But evidently, they had other plans and resorted to going to the US to help in a joint intervention effort to bring USD/JPY down. And so far, the move or should I say the symbolic nature of the move is enough to keep things in check with USD/JPY continuing to dribble lower today.
The currency pair is down another 0.7% to 156.43 with the low earlier today touching 155.23. This marks the lowest levels since May for the currency pair. And perhaps more importantly, it marks a break below both the key daily moving averages for the first time since July last year.
[USD/JPY daily chart]
So, what’s next for USD/JPY at this stage?
It is clear that the solo venture by Japan’s ministry of finance is not having its intended impact. And that is a rather scary proposition in itself. The symbolic nature of needing the US Treasury to step in with some help just means that any other play by Tokyo alone may not hold up, if at all. That is should traders realise that there will also be limits to the US stepping in to help. I can’t imagine this being a constant coordinated effort from both sides.
I mean, it’s a dangerous game to be playing for the US.
Even on this joint intervention alone, I was doubtful that it would ever happen. However, I guess desperate times call for desperate measure for Japan.
So far, the US is framing it as a move to help out its ally. But let’s be clear, there is a political message to it as well. And if reading between the lines, it may make things a bit more complicated for the US and the dollar.
In stepping in to help Japan, it says two things. One, is that the US agrees that the Japanese yen currency has been “mistreated". Two, is that the US dollar itself may be “too strong".
Inherently, it just means that the US has to take more of a dollar policy stance in this matter rather than framing it as an isolated incident to the yen and the global market reaction. And I don’t think Trump would like to play that game too much, as it would complicate things even more ahead of the midterms.
For now though, some positive news from US-Iran developments will also help with Japan’s economic plight at least. But as we’ve seen before, any ceasefire deal may not last and the reality to any “reopening" of the Strait of Hormuz is not going to play out as what either side is saying. So, there’s that.
To keep things short, the US can offer up some additional support to Japan in bolstering the defense of the yen currency. But do they really want to go down that road and risk amplifying a more obvious dollar policy stance?
And even so, their options would be limited as this will not be an open-ended play. As such, Japan will still have to do most of the heavy lifting on its own to try and prop up the currency.
So yes, this may work in the short-term. But if the fundamentals still don’t change whatsoever in the long-term, we will be coming back to this conversation again in a few months’ time.
This article was written by Justin Low at investinglive.com.