JPY: Partial Reversal but Upside Risks to Persist - MUFG
Derek Halpenny, European Head of GMR at MUFG, suggests that the Japanese
Finance Minister Aso spoke in early Tokyo trading today helping to stem
the relentless buying of the yen, expressing concern over the
“excessive” and “one-sided” moves promising to “take action as needed”.
Key Quotes
“This
is certainly evidence of an upturn in the strength of rhetoric in
regard to the direction of the yen that implies greater probability of
action. USD/JPY fell by 5.4% from the high on 29th March to yesterday’s
low and by 11.5% since the high on 29th January following the BOJ’s
decision to implement a negative policy rate. So FM Aso has a point that
moves have been one-sided!
The scale of this current account
surplus is not fundamentally compatible with an under-valued currency
and hence there is a strong underpinning to the advance of the yen that
would be difficult to halt with intervention. At over 120.00, our
internal PPP estimate implied a 26% overvaluation. That’s correcting now
but USD/JPY is still in overvalued territory.
The Japanese
authorities last intervened in 2011 – in March after the earthquake and
tsunami on a coordinated basis with other countries and then solely in
August, October and November of that year. The March 2011 intervention
was triggered by disorderly price action (USD/JPY fell by over 4% on
that day of intervention – 17th March) and the other occasions were when
USD/JPY was below the 80.00 level. Disorderly price action would appear
the only plausible scenario of triggering intervention now and the
March 2011 scenario may be the benchmark of how disorderly price action
may need to become.”
(Market News Provided by FXstreet)
