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JPM See Risk of Japan/South Korea Intervention "Extremely Low"

JAPAN
  • JP Morgan write that the hurdle for joint Japan/South Korea currency intervention is high, and the possibility of “extremely low” despite the statement made by their respective finance ministers.
  • They see joint intervention as more difficult than unilateral, with joint interventions tending to only be conducted in crises. They also see more difficult cooperation between South Korea and Japan because South Korea is not a member of the G7, and therefore their FX regimes are more difficult to coordinate – particularly as the KRW is not fully convertible.
  • On unilateral Japanese intervention, they write that they do not expect the Japanese MoF to come into the FX markets immediately based on any approval from the US.
  • They think it is unlikely that the MoF’s stance has changed significantly after the trilateral meeting. Whether JPY FX moves are excessive or not and whether FX is in line with fundamentals should remain important. Given that, they believe that current USD/JPY moves are not “excessive” necessarily, and the recent USD/JPY rally has been driven by broad USD strength, not by speculative JPY-selling. This leaves the MoF to continue “wait and see” mode for a while.
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