JPY: Intervention threat not a sustainable driver for a weaker currency - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the yen has strengthened in the Asian trading session partially reversing weakness from early this week.

Key Quotes

“It is the first day this week that Japanese officials have not verbally intervened which is encouraging the yen to regain some lost ground. It is consistent with our view that the threat of intervention is unlikely on its own to support a sustained re-weakening of the yen. Economic fundamentals including the weak global growth outlook remain supportive for a stronger yen. At best verbal intervention may help to yen strength in the near-term by curtailing speculative demand for long positions.

Bloomberg has also reported comments overnight from Koichi Hamada, an economic advisor to Prime Minister Abe, stating that rapid yen gains which lower USD/JPY towards the 100.00 level could trigger intervention. However he does not expect it to prove necessary believing that USD/JPY is unlikely to drop below the current 105-110 range. He believes that Japan retains the right intervene directly but admitted that it faces a dilemma given that the US may oppose intervention ahead of the presidential election which also poses possible risks for the ratification of the Trans-Pacific Partnership (TPP) trade agreement.”