The Challenge After the BoJ Intervenes in the JPY
When the BoJ met in September speculation had been increasing regarding BoJ intervention. The weakness in the JPY had been impacting Japan’s import market pushing up consumer prices and higher energy prices earlier in the year had been making it worse. So, when the BOJ met it was perhaps surprising that it did not even particularly try to weaken the JPY. However, it did that the following morning.
The BoJ kept interest rates unchanged and it maintained the yield curve control. It repeated the need to keep the powerful easing policy in place. The pandemic relief program was extended between 3-6 months depending on how the loans were made. However, there was no indication that FX intervention was imminent.
The rate statement was quickly eclipsed by the FX moves in the JPY. Those moves were affirmed by Japan’s Vice Minister for Financial affairs saying the Gov’t took decisive action in FX markets. You can see the impact of the BoJ’s intervention below in the USDJPY.
The difficulty here for the BoJ is that fighting market dynamics will be hard/impossible. The banks in recent history that have tried to intervene in their currency successfully against market forces have failed. Think of the SNB as a prime example when the EURCHF peg collapsed in 2015. So, if US10-year yields keep moving higher then the USDJPY pair can keep moving higher too. So, expect the market to test the BoJ’s resolve. On Friday the US Core CPI print will be released. If the print comes in below market expectations then the BoJ can breathe a sigh of relief as that should take the USDJPY pair lower in line with US 10-year yields. However, should the print come in higher then expect yields to rise and the USDJPY too. That will throw the ball back into the BoJ’s court and traders should watch for any further signs of intervention.
About: HYCM is the global brand name of HYCM Capital Markets (UK) Limited, HYCM (Europe) Ltd, HYCM Capital Markets (DIFC) Ltd and HYCM Limited, all individual entities under HYCM Capital Markets Group, a global corporation operating in Asia, Europe, and the Middle East.
High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.
*Any opinions made in this material are personal to the author and do not reflect the opinions of HYCM. This material is considered a marketing communication and should not be construed as containing investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. HYCM does not take into account your personal investment objectives or financial situation. HYCM makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast, or other information supplied by an employee of HYCM, a third party, or otherwise. Without the approval of HYCM, reproduction or redistribution of this information isn’t permitted.