FX comment – USD/JPY breaks 113; rising risk of MoF/BoJ FX intervention

by: Roy Teo


  • USD/JPY breaks 113 as stop loss triggered
  • Rising risk of MoF/BoJ FX intervention


USD/JPY breaks 113 as stop loss triggered

The JPY has gained by more than 7% against the USD since the BoJ surprised financial markets by introducing negative interest rates on 29 January. There are several reasons contributing to this. 2 year US yields have since declined by about 9bp as financial markets reduced bets that the Fed will raise interest rates anytime soon. This exerted downward pressure on USD/JPY. However the sharp decline in USD/JPY was more pronounced than justified by lower US yields. Safe haven flows, rising speculative bets and stop loss have all exacerbated the move.


Rising risk of MoF/BoJ FX intervention

Given that the BoJ decision last month to introduce negative rates was a close call (5-4 vote), it will take some time for BoJ members to come to an agreement that more negative rates is needed. The next monetary policy meeting is on 15 March. Hence in our view the pressure rests on the Ministry of Finance (MoF) to intervene in the currency market to warn speculators that the direction in the JPY is not a one sided bet. Data from CFTC shows that speculators’ net long futures positions are close to levels when the MoF last intervened in October 2011. In addition, volatility in the JPY have been rising in the past two months to similar levels in October 2011.