TD Play Down Prospects Of JPY Intervention

TD Securities note that “unbridled yen weakness in recent weeks has generated speculation that Japanese authorities might need to step in to stabilize the currency. 'Yentervention' is a losing proposition and we think it is unlikely to occur. Unless the BoJ abandons YCC and embraces a hawkish footing, there is little that Japanese authorities can do to offset a rush to neutral by the Fed. The latter should maintain pressure in rate differentials to strategically support USD/JPY. We have largely played USD/JPY topside from Y116 to Y125 in our FX Model Portfolio. We sit neutral given that Fed funds markets are pricing in a 50bp hike for the May meeting. We see Y120 as a floor for the time being and forecast a return to Y125 in Q2. The risk of a move above this level remains non-trivial in our view given the Fed terminal rate may be higher.”