Japan: Time for Intervents-Yen? – ING
Research Team at ING, suggests that despite verbal intervention from the
MoF last week, the bar for unilateral FX intervention remains high.
Key Quotes
“But
if the recent surge in JPY continues, the BoJ may find itself in a
difficult position at its next meeting at the end of April.
JPY
surges higher, pressure for FX intervention builds. Verbal intervention
from the MoF has quickly progressed this week, with officials moving
from “monitoring closely” to citing JPY moves as being “one-sided”.
Historically, language such as “speculative” or “not reflecting
fundamentals” has been the next and final steps before FX intervention.
Yet,
the bar for unilateral intervention by Japanese officials remains high.
For one thing, PM Abe will be wary of breaking the G20 pledge against
competitive devaluations ahead of May’s meeting – where he looks set to
push for coordinated action to promote global growth. Besides,
unilateral FX intervention has historically been ineffective, with the
impact typically short-lived. Only the Mar 2011 intervention following
the tsunami crisis in Japan had any enduring effect on the yen; this was
almost certainly due to the fact that the move was coordinated with
other G7 central banks. With the JPY REER still 30% below its long-term
average (ie, strongly undervalued), officials outside of Japan are
unlikely to see any real justification for coordinated intervention.
Given
that FX intervention is unlikely for now, the pressure has increased on
the BoJ to deliver some form of stimulus at the 28 April meeting. The
economic case for easing is clear, so the two main questions are (a)
what options do the BoJ have and (b) can these measures reverse or even
stem the JPY’s current upward trend.
Overall, the BoJ may well
find itself between a rock and a hard place should JPY strength persist
ahead of the 28 April meeting. With intervention unlikely this side of
105, the BoJ’s biggest challenge will be to deliver a stimulus package
that does more good than harm. Getting it wrong could prove costly in
terms of fuelling JPY upside.”
(Market News Provided by FXstreet)
