Emergency Stop
In the early hours of trading on Monday morning, sudden and significant buying pressure within USDJPY has markets wondering: is this the signal that local authorities are taking another stab at active market intervention? In a critical week for FX, with central bank decisions and a slew of top-level economic data from across the globe, speculation over intervention in Japan still dominating the FX narrative. Around 2:30 AM, USDJPY hit a multi-decade high of 160 but wasted almost no time in correcting back into the low 159s. Sparking little cause for concern and easily attributable to private market limit order plays during illiquid conditions, it was only the next move that has sparked interest in possible FX intervention.
A few hours later and the next move saw USDJPY shave 3% from its value during a massive spike in trading volume. This would not be the first time that Japanese monetary authorities would target a psychological level at which to begin buying the Yen. The event occurred during a bank holiday in Japan, limiting but not eliminating the possible role of state authorities in today’s market. Officials have so far declined to comment, only adding to speculation of intervention.
The last round of confirmed FX intervention took place two years ago. In 2022, intervention failed to change the relentless drive higher in USDJPY. The size of the JPY buying was significant but aside from short term corrections, the market continued to shift higher over time. The backdrop today is different with a markedly changed BoJ from that in control during the last round of intervention. It is possible therefore that should yesterday have evidenced the latest in a campaign of monetary intervention that it may not be destined to the same fate as former attempts. Markets will be awaiting confirmation from Japanese authorities as to whether Monday’s intervention (if confirmed) was a one-off rebalancing event or if ongoing interventions are planned.
Discussion and Analysis by Charles Porter
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