USD/JPY: 145 breached yet BOJ intervention seems unlikely

Widening interest rates differentials between the United States and Japan continue to support the USD/JPY, seeing the pair pop to a fresh multi-month high above 145.00 today. While the move was unable to be sustained, the probe above the level will undoubtedly raise questions among traders about the threat of renewed currency market intervention given it was where the Bank of Japan first intervened back in September last year to curb relentless yen weakness.

The widening in rate differentials corresponds with another push higher in US bond yields after producer prices rose more than expected in July, including for services which reinforced concerns about strong wage inflation contributing to stickiness in services inflation.

How likely is that we see renewed intervention?

While the level is the same, the market dynamics are not. For starters, the yen has lost a little more than 5% against the US dollar over the past month, around half the amount seen over a similar timeframe prior to when the BOJ decided to intervene. As many seasoned central bank watchers know, it’s not levels that concern policymakers but how markets are functioning at the time. This move, so far at least, has been relatively measured, likely explaining why we’ve not seen a deluge of commentary from Japan’s Ministry of Finance (MOF) expressing displeasure at where the yen is trading. As a reminder, the MOF instructs the BOJ to intervene on its behalf.

Adding to the case against intervention, the latest yen depreciation mirrors a widening in yield differentials with the US dollar, suggesting the move is warranted, especially when the BOJ continue to actively intervene in the Japanese government bond (JGB) market to keep benchmark 10-year yields anchored around 0%.

Watch for verbal intervention from the MOF

If the BOJ is instructed to intervene again, keep a look out for remarks from Japan’s Ministry of Finance expressing concern about market movements. As yet, we’ve not seen anything similar to what was seen before prior interventions, including after today’s move.

The USD/JPY trades at 144.90, well off the intraday high of 145.22 as a distinct risk-off tone spreads across Asia.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.