JPY: End Of The Run? - Credit Agricole
A combination of both, rising intervention fears and additional scope of the BoJ turning more aggressive on monetary policy has been weighing on the JPY this week. This is mainly due to officials such as Finance Minister Aso or PM Abe Adviser Hamada indicating that a further appreciating currency would negatively affect domestic conditions and increase the risk of intervention being considered. Keeping in mind that a stronger currency should indeed have been a main factor of driving medium-term inflation expectations to multi-year lows, any market involvement may not be regarded as competitive devaluation. Elsewhere, muted price and growth developments may put the BoJ in a position to consider additional measures if needed.
As a result of the above outlined conditions the JPY may be subject to position squaring related downside risks still, especially if incoming data confirms more muted growth prospects.
In terms of data, next week’s main focus will be on preliminary Q1 GDP.
Please note that we went long EUR/JPY* This view is also based on the notion that the ECB is nowhere close to turning more aggressive on monetary policy anytime soon. Hence, there is room of diverging monetary policy expectations to the benefit of the cross.