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JPY: Yen Weakens 7% Last 3 months, Other Factors Question Intervention Merits

JPY
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USD/JPY sits off session highs albeit modestly. The pair last near 155.85/90, against earlier highs of 156.06, levels last seen in late July. So far we haven't heard any fresh verbal jawboning from the authorities around FX. With the pair at fresh multi month highs we wouldn't be surprised to see fresh rhetoric pick up, although language used last week was already an upgrade: adding the word "extremely" to the phrasing "We are watching developments [...] with an extremely high sense of urgency". 

  • Current spot levels are close to April intervention levels in USD/JPY, although sub the +160 intervention levels from early July. We are clearly above 2022 intervention levels from a spot standpoint.
  • In terms of rate of change, the first chart below plots the rolling 1 month and 3 month rates of change for USD/JPY, along with vertical bars to represent intervention episodes. The 3 month rate of change is above 7%, which is levels we got to in April of this year. We also got close to this threshold in July. In 2022 levels were more elevated but obviously spot was lower. The 1 month rate of change sits close to earlier intervention level thresholds for 2024.
  • Still, there may be some considerations for the authorities around intervention success at the current juncture.
  • The rapid move higher in US yields amid the Trump related reflation trade is pushing US-JP yield differentials higher. USD/JPY may have run too high relative to such trends, but the directional correlation remains strong.
  • The other factor is market positioning. At least per CFTC data, yen leveraged shorts and aggregate ones (including asset managers) are above recent lows, particularly for 2024, see the second chart below. 

Fig 1: USD/JPY Rates Of Change & Intervention Episodes  

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USD/JPY sits off session highs albeit modestly. The pair last near 155.85/90, against earlier highs of 156.06, levels last seen in late July. So far we haven't heard any fresh verbal jawboning from the authorities around FX. With the pair at fresh multi month highs we wouldn't be surprised to see fresh rhetoric pick up, although language used last week was already an upgrade: adding the word "extremely" to the phrasing "We are watching developments [...] with an extremely high sense of urgency". 

  • Current spot levels are close to April intervention levels in USD/JPY, although sub the +160 intervention levels from early July. We are clearly above 2022 intervention levels from a spot standpoint.
  • In terms of rate of change, the first chart below plots the rolling 1 month and 3 month rates of change for USD/JPY, along with vertical bars to represent intervention episodes. The 3 month rate of change is above 7%, which is levels we got to in April of this year. We also got close to this threshold in July. In 2022 levels were more elevated but obviously spot was lower. The 1 month rate of change sits close to earlier intervention level thresholds for 2024.
  • Still, there may be some considerations for the authorities around intervention success at the current juncture.
  • The rapid move higher in US yields amid the Trump related reflation trade is pushing US-JP yield differentials higher. USD/JPY may have run too high relative to such trends, but the directional correlation remains strong.
  • The other factor is market positioning. At least per CFTC data, yen leveraged shorts and aggregate ones (including asset managers) are above recent lows, particularly for 2024, see the second chart below. 

Fig 1: USD/JPY Rates Of Change & Intervention Episodes  

Keep reading...Show less