Japanese Yen Intervention Nears, Warns Citi & TD
- Written by: Gary Howes
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Japanese yen weakness is pushing USD/JPY closer to levels that historically raise the risk of official intervention.
"The Takaichi administration is starting to move to defend the JPY," says a new analysis by Citi.
The call comes amidst renewed JPY weakness amidst speculation that Takaichi is set to call a snap election to capitalise on her popularity and restore her party's majority in the Diet.
The yen's weakness tells us the market thinks a stronger Takaichi regime would be consistent with more overtly JPY-negative policies.
Given the scale of the falls, the administration appears uneasy about the currency's fall, and with no policy about-turns likely, they are left with intervention as the only option to stabilise the currency.
"We would not be surprised if the Japanese government and MoF were to intervene to buy the JPY at any point once the USDJPY tops 160," says Citi.
Analysts at TD Securities meanwhile say "recent strong verbal intervention may deter further bearish JPY bets, but it is always tough to trade on MoF intervention timing and possibility."
In fact, say strategists at TD, it might be a better trade to fade any JPY strength post any MoF intervention.
"We think they are prepared to pull the trigger around 161-163 range, possibly taking a shot during the US holiday next Monday, Jan 19 if we make a push higher in USDJPY by then," says TD strategist Jayati Bharadwaj
She expects PM Takaichi to call a snap election and look for USDJPY to break through 162 in the event the LDP wins >233 seats out of the 465 seats up for grabs in the Lower House.