MOF intervention: A day late and lots of Dollar sold

Stephen Innes SPI Asset Management

The Japanese Ministry of Finance is believed to have intervened in the currency markets, yet the impact was only temporary. Despite initial selling pressure on the dollar hitting 155 , USDJPY quickly rebounded to levels seen just after the Bank of Japan's decision.

Nevertheless, the core drivers of the USDJPY pair remain largely unchanged. The currency pair is highly sensitive to movements in US 10-year yields, with the yield differentials still favoring the dollar by a country mile.

However, Japan is confronting a multifaceted challenge regarding its monetary policy and fiscal situation.

While there may not be a distinct threshold for stabilizing the yen and capping bond yields simultaneously, Japan's substantial debt burden complicates its policy options. A significant uptick in the yield of 10-year Japanese Government Bonds (JGBs) could potentially trigger a fiscal crisis, given the government's heavy reliance on borrowing to service its debt.

Balancing the management of the yen's exchange rate with maintaining stability in bond yields presents a delicate balancing act for Japanese policymakers. The country's elevated debt levels pose a significant hurdle, requiring careful navigation to steer clear of economic turbulence.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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