The Bank of Japan sent out some threatening comments last week that signalled a potential intervention in the Japanese yen.
With the US dollar soaring recently, officials were unhappy at the decline of the yen, which traded at 24-year lows.
USDJPY-Daily Chart
The USDJPY pair saw almost a 500 pip round trip on the move by the BoJ.
In our blogs last week, we mentioned USDJPY but also spoke of potential losses for the AUDJPY pair. Traders often ignore intervention comments, but they now have a line in the sand, and buying the USDJPY ahead of 145 would be a risk.
Japan’s monetary move was historic as it was the first currency intervention in the yen since 1998. In January of 2021, the USDJPY traded around the 100 level, which highlights how far the market has moved.
Masato Kanda, Vice Finance Minister for International Affairs, told reporters that the government took “decisive action” in the currency markets following the latest BOJ policy decision that kept rates unchanged at near-record lows. The bank will also have noted another 75bps move from the US Federal Reserve on Wednesday and sent out a message to USD bulls.
“We think that FX market intervention only aims to smooth out volatile currency movements, not to change the course of currency depreciation,” said ING currency analyst Min Joo Kang.
“The next big event risk now may be the early October meeting of central bank governors and finance ministers in Washington,” she added. “The Japanese will have to convince US authorities that the strong dollar is a problem, such that G20 FX language is altered. That is a tough task, with the Fed still seemingly welcoming dollar strength. “
Analysts are not expecting any near-term changes to monetary policy in Japan before Governor Harukiko Kuroda retires in April of next year.
“There are four policy meetings left until Governor Kuroda retires, and there is little possibility of policy change at these four meetings,” Kang said. “Also, it is still too early to tell, but it appears that it will take some time for the BoJ to make any policy changes even after Governor Kuroda steps down.”
The US Federal Reserve signalled higher rates into the end of 2022, and the BOJ intervention could remove some of the fears surrounding the yen.
