The past 16 hours have been unfavorable for Japan in its attempts to stem the yen’s slide. On the one hand, they reportedly intervened in the market to try to capitalize on a weaker US CPI report during early US trading. Then they let the move leak out very quickly afterward.
I mean, sure, we all had our doubts. But it’s not unusual for Tokyo to easily let news get out like this.
The USD/JPY pair has fallen by about 250 pips since before the US CPI report, but somehow, this still feels like a failure on the part of Japanese officials. To put it another way, the pair has risen by about 170 pips from its low of 157.40 after the alleged yen intervention.
So, why did Tokyo decide to make this move during one of the most liquid periods in trading yesterday, if not the most liquid ever?
In fact, the US inflation figures came in below expectations. The details also showed that price pressures were generally easing. All of this confirms the narrative that deflation is still ongoing, though I would argue that it is still proceeding at a fairly gradual pace.
But is all this enough to force the Fed to cut interest rates in September or at least three times this year? Well, that’s another topic for discussion. But I still have reservations about the latter.
However, Japanese officials were certainly hoping to get some sort of run for their money by pushing the USD/JPY lower alongside further dollar selling.
Previous intervention efforts by central banks came during tight market hours and then petered out during May and June. So this is certainly something new. But is this really a sign of creativity on the part of central banks? Or is it a sign of desperation, meaning that they no longer have the means to prevent the yen from falling much higher?
In my opinion, it doesn’t matter much whether it’s one or the other. Ultimately, it comes down to the basic narrative in Japan.
I still don’t see the Bank of Japan having enough convincing to tighten monetary policy aggressively, and I think the broader markets largely share that view so far.
So, yes. Tokyo is certainly still trying to keep its feet on the ground in an attempt to prevent the yen from falling further. But that doesn’t help its case when that’s the only factor pushing traders to look the other way.
Even when it comes to technical data, the USD/JPY pair is still maintaining its bullish trend for the year after the volatility it has seen since yesterday:
USD/JPY Daily Chart