Now, this is more like it. Comparing this to the blip on Friday, there is definitely much more of a difference even in the first 30 minutes so far. It certainly looks like Tokyo is making it known that they are in the market. I mean, I really can’t think of anything or anyone else that could move USD/JPY in such a manner.
The question now though is, can they really keep this up if the market pressure continues over the short to medium-term?
The big problem for Japanese officials is that they don’t have the fundamental narrative on their side. In the latter stages of last year, it was already a race against the clock for the BOJ and even more so now when price developments are starting to ease. That is seeing market players grow more skeptical about any more rate hikes.
And no matter what they do with the currency, that perception will not change until inflation data takes a turn.
The point to consider is that intervention is only doubly effective when it is paired alongside a shift in the fundamental line of thinking. Something’s gotta give.
And in the case for the BOJ/MOF right now, they don’t really have that backing. The most they can hope for is to buy time and deter speculators from taking things too far. But it will come at a cost. And as much as they’d hate it, they can’t let the yen go into a dramatic freefall as well.
It’s a case of praying for something to change eventually. At best, the way I see it is that something on the dollar side of the equation changes. Otherwise, it’s a tough one to fight the long-term narrative here. Talk about being placed between a rock and a hard place.
This article was written by Justin Low at www.forexlive.com.