FX Flash: Fears of FX intervention limits JPY gains

by: Roy Teo

Japanese yen reverse gains as Prime Minister Abe warns

The Japanese yen strengthened to 101.60 against the US dollar this morning as the risk off mode in financial markets continued. However the yen eased back to 102 after Japan Prime Minister Abe said that both Finance Minister Aso and Bank of Japan (BoJ) Kuroda needs to cooperate and watch markets more closely. He added that Japan will inform G7 that they will do their utmost to settle markets. This has raised market speculation that should volatility in the yen remains elevated, a unilateral intervention in the currency market and/or unscheduled monetary policy response from the MoF/BoJ will take place.

 

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Co-ordinated intervention preferred, unilateral action cannot be ruled out

There has been some encouraging signs that volatility in the yen has slowed in recent days. Hence we suspect that a unilateral intervention by Japan is unlikely at the moment. We also think that Japan would prefer a co-ordinated action with the G7 as that would send a larger response to financial markets. Indeed Finance Minister Aso said this morning that they will take necessary action on the currency market if needed and would cooperate with G7 and the BoJ to ensure market stability. Nevertheless, we do not rule out that Japan may act alone if volatility in the yen spikes again and speculative forces are more evident.

28 Jun