Japanese Yen: Joint intervention signals potential turning point – MUFG

MUFG’s Michael Wan highlights that the Japanese Yen (JPY) has strengthened sharply, with USD/JPY dropping from around 164 after suspected intervention by Japan’s Ministry of Finance (MoF) and confirmed joint action with the US Treasury. He notes that past joint JPY interventions often coincide with turning points in USD/JPY, but stresses that fundamentals must shift for a durable move lower.

Historic joint action in Yen markets

"The Japanese Yen strengthened further below the 158 level heading into the weekend, with the media including the FT and Bloomberg reporting that the US Treasury intervened to strengthen the Japanese Yen on Friday by selling Euros to buy Yen."

"In Asia morning time, Japan’s Finance Minister Satsuki Katayama released a statement confirming that both Japan and the US Treasury intervened on Friday, and that they will not hesitate to conduct further joint intervention if necessary in close coordination with the US."

"Historical episodes of joint JPY intervention show that these events have typically taken place around key turning points in USD/JPY, but this is not always the case and tends to take some time before the broader trend changes."

"For instance, in June 1998, USD/JPY fell sharply from 146 to 136 within a few days, helped by joint FX intervention, but it took at least two more months after that and shifts in the underlying dynamics of the Asian Financial Crisis before USD/JPY’s longer-term trend broke."

"Overall, while we think that the joint intervention is certainly historic and significant, and could certainly play an important role in the short-term in clearing out Yen shorts, the fundamentals likely still need to change for a more durable move lower in USD/JPY."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)