Japanese Yen: Joint intervention supports yen outlook – MUFG

MUFG’s Lee Hardman notes that the Japanese Yen has strengthened as Japan and the US conducted joint intervention to counter recent volatility. He highlights planned use of the Federal Reserve’s FIMA Repo Facility, US euro-to-yen reallocations, and Japan’s sizeable FX reserves. Hardman also stresses more hawkish Bank of Japan guidance and lower Oil prices as reinforcing support for the Yen.

Yen aided by policy and energy moves

"The yen has continued to strengthen at the start of this week after Japanese Finance Minister Katayama confirmed overnight the Japan intervened alongside the US to support the yen on Friday. The statement justified the joint action to counter excessive volatility and disorderly movement in the yen in recent months, and emphasized that “we will not hesitate to conduct further joint intervention”. It was the first joint intervention involving Japan and the US since 18th March 2011 when joint intervention was undertaken after the 11th March Tohoku earthquake and tsunami to weaken the yen."

"At the same time, the statement from Finance Minister Katayama revealed that Japan also plans to utilize the Federal Reserve’s Foreign and International Monetary Authorities (FIMA) Repo Facility in the future. The facility enables Japan to access up to USD60 billion per day without selling Treasuries for up to seven days. The facility allows Japan to borrow US dollar temporarily by pledging Treasuries as collateral."

"With support from the US, intervention to support the yen will be viewed as more credible and if it proves more effective it could then mean that less intervention is ultimately required requiring less Treasury sales."

"Overall, the latest development give us more confidence in our forecasts that the yen is in the process of bottoming out. The threat of further joint intervention and a faster pace of BoJ hikes should provide more support for the yen, and discourage speculators from running elevated short yen positions."

"The comments signal that the BoJ may hike rates as soon as the next policy meeting in line with our forecasts rather than wait until the end of this year."

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