JPY: Verbal Intervention Continues, Ahead of G7 Meetings - Nomura
Yujiro Goto, Research Analyst at Nomura, notes that the USD/JPY has been
recovering after breaching 106 last Tuesday, without clear catalysts.
“JPY long positions remain large, while USD positioning at the IMM has already turned to net short positions against major currencies, likely causing position unwinding of JPY long positions accumulated after the BOJ’s disappointment.
In addition, since last week comments on the FX market by Japanese policymakers have been frequent. Finance Minister Aso today repeated that Japan can intervene to stabilise currencies if necessary, after stating it is natural that Japan has the means to intervene yesterday.
Prime Minister Abe also commented on FX markets last week during his Europe visit, repeating that "abrupt currency moves are not desirable". He also said "exchange rates must be stabilised" and he said he may discuss FX markets at the G7 summit meeting if necessary. The head of Keidanren, Japan’s biggest business lobby, Mr. Sakakibara, yesterday said it is reasonable for Japan to intervene in the market amid rapid and speculative appreciation, while the lobby would support JPY intervention if it occurs. As the upper house election approaches, avoiding further JPY appreciation will now likely be a higher priority for the government.
Finance Minister Aso and Prime Minister Abe's comments still do not suggest imminent intervention at current levels, especially after the recovery of USD/JPY this week. Nevertheless, FX intervention concerns will likely limit downside risks of USD/JPY for the time being. Two meetings, the G7 Finance Ministers and Central Bank Governors’ meeting on 20-21 May and G7 summit meeting on 26-27 May, will be important for judging the efficacy of verbal intervention as views on the FX market between US and Japan appear to be different.
Any convergence or further divergence between the US and Japan’s view on the FX market will be worth monitoring. We believe the expected announcement on a fiscal stimulus package by Japan after the G7 summit could alleviate criticism on Japan’s FX intervention when necessary, while monetary policy easing is also likely to follow after any FX intervention, as happened in 2010-11.”