Intervention risks abound as the Japanese yen can't get off the floor
USD/JPY has been poking and prodding at levels above 160.00 since last week. And traders are yet to find much conviction to take things to the next level. Intervention risks are very much heightened at this stage, with current levels being where Tokyo last decided to take action at the end of April.
To their part, Japan's ministry of finance had been arguably waiting to see how markets will respond to the BOJ decision today. That was part of the playbook for April, so will it be the same this time around?
Today, the central bank delivered a 25 bps rate hike as expected in bringing interest rates to 1% while also announcing a pause to their bond tapering from April next year.
But so far, there doesn't seem to be much pressure being alleviated off the yen currency with USD/JPY keeping in the realms above 160.00 still.
Despite more optimistic developments from the US-Iran conflict, the currency pair continues to stay underpinned for the most part.
The yen will only be able to find relief once there is actual movement along the Strait of Hormuz. Otherwise, it's hard to see how things will change for the Japanese economy in reality. Even if oil prices may reflect one thing, it's a different story when supply remains an issue and consumer price pressures continue to grow.
That not to mention that the Takaichi trade is still running in the background, with the war making things worse as the government had to compile an extra budget to offer fuel subsidies. And with higher rates now, the fiscal pressure is certainly mounting.
If the yen is not able to get off the floor even on any good news, that's not a positive sign whatsoever.
It feels like only a matter of time before the ministry of finance has to decide to step in again. They stepped in two days after the BOJ decision in April when USD/JPY raced above 160.00. So, there's some precedent to them acting after markets don't respond to the central bank decision as they would hope.
But even then, it seems like any intervention efforts will just be a mere speed bump or a temporary diversion.
Unless the fundamentals really change and the Strait of Hormuz actually reopens properly, the path of least resistance is still for a move higher in USD/JPY.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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