JPY: Japan Strengthens Direct Intervention Threat - MUFG
Lee Hardman, Currency Analyst at MUFG, suggests that the verbal
intervention from Japanese officials has had only a limited impact at
dampening yen strength in the near-term.
Key Quotes
“However,
it was more notable that Japanese Chief Cabinet Secretary Suga stated
in an interview with Reuters over the weekend that the G20’s agreement
to avoid competitive currency devaluations does not mean that Japan can
not intervene in response to one-sided currency moves. He stated as well
that Prime Minister Abe’s comment to the Wall Street Journal last week
that countries should avoid “arbitrary intervention” was misunderstood
and does not rule out intervention for Japan.
He explained that
“what the G20 is talking about is arbitrary intervention, which is
different from responding to a one-sided move”, and that Prime Minister
Abe’s “comments were based on the G20 understanding that long-term
manipulation of currencies is undesirable”. It is clear that there has
been some backtracking from Japanese officials with the aim to send a
stronger signal to the market that the threat of direct intervention is
higher than previously assumed.
As a result further comments
overnight from Chief Cabinet Secretary Suga carry more weight after he
stated that Japan is watching FX moves with vigilance and will take
necessary action on FX if needed. He added as well that they are seeing
speculative moves in the markets. It is consistent with the release of
the latest IMM report which revealed that speculative long yen positions
have reached a record exceeding the peak from early in 2008. However,
in net terms after subtracting short yen positions, the overall net long
yen position still remains around a quarter below the peak from during
2008.
We still believe that the risk of direct intervention to
dampen yen strength remains relatively low in the near-term although is
higher following Chief Cabinet Secretary Suga’s comments over the
weekend. It will likely require a further sharp strengthening of the yen
to more materially raise the likelihood of direct intervention. We
also believe that the strengthening of the yen is justified by
fundamentals and is not just driven by speculation.
As a result,
we remain sceptical that direct intervention would reverse the
strengthening trend for long with the yen still modestly undervalued.
However, the comments from Chief Cabinet Secretary Suga will make the
market more nervous over the risk of direct intervention which may at
least help to dampen further yen strength in the near-term.”
(Market News Provided by FXstreet)
